JP Morgan: Worst nearly over in Asian container trade

MARKET conditions in the container trade from Asia are unlikely to get much worse this year, but little improvement can be expected either, according Hong Kong's JP Morgan analyst Johnson Leung.

We do not expect any meaningful improvement this year, but we believe the trade is unlikely to get a lot worse, as operators are likely to save on some losses by parking ships rather than running them, said Mr Leung in his report.

We believe Asia-Europe trade could have dropped by 20 per cent since August as the head haul utilisation of the Asia-Europe trade has gone from about 80 per cent to 75 per cent over the past five months, according to our industry contacts, while 16 per cent of the capacity has been pulled out of the trade, according to Paris-based AXS-Alphaliner, he said.

The disappearance of the Far Eastern Freight Conference (FEFC), following a ban on its activities by the EU in October, has increased the lack of visibility, said Mr Leung.

While we will not see the volume data that we used to see from the FEFC at least until the end of January, the throughput decline in Singapore, a port used extensively as the transhipment hub for the Asia-Europe trade, gives us some clue about the current state of the business. However, the throughput at the Singapore port is not purely Asia-Europe, as it also has a cargo mix from intra-Asia and transpacific trades, he said.

Eurozone retail sales volume continued its downward trend that started at the end of 2007 with year-on-year retail sales growth the worst on record, he noted.

We expect the overall transpacific traffic to contract two per cent year on year in 2008 and 2009, before returning to two per cent growth in 2010. Latest data points suggest that the sales decline is still faster than the inventory cut. So we may not see any meaningful restocking activity for another couple of months.

We believe carriers are doing what they can to minimise the capacity growth. Capacity is being laid up, while the new-build delivery schedule has been pushed back a couple of months. While this short-term solution may only postpone the capacity problem, it should save the market from falling any further from this point, in our view, he said.

About 11.5 per cent of the operating ship capacity has been pulled out of the main east-west trades, such as Asia-Europe, transpacific, and transatlantic, over the past five months since August 2008, according to AXS-Alphaliner.

Asia-Europe trade saw the largest capacity cut of 16 per cent. Most of the suspended capacity is currently idle due to a lack of profitable alternative markets.

Source: American Shipper