East-west freight rates to drop 7pc in 2011: Drewry

FREIGHT rates on major east-west loops are projected to shrink seven per cent in 2011 because carriers cling to abundant capacity to better cling to market share, reports Drewry`s latest quarterly Container Forecaster.

"Unfortunately, the desire to maintain market share seems to be the primary driver in the east-west trades at the moment since carriers have resolutely refused to take out capacity from the market place despite the fact that headhaul utilisation factors were in the low 80s (mid-December) and spot rates were falling steadily week by week," said the report`s editor Neil Dekker.


One of the reasons that major carriers feel reluctant to reduce their capacity, said Drewry, is the rise of the smaller carriers this market, reports London`s Containerisation International.


The top 20 carriers absorbed 72.7 per cent of global market share in late September 2010. This market penetration rate was the same as their share four years ago, but only slightly higher than 71.7 per cent share in 2009. This means that smaller carriers have been performing well and have let major carriers pay much attention to such rivalry.


Drewry said the profitability of carriers will contract to about US$8 billion compared to an estimated $17 billion in profits last year, and warned that "this could be considerably lower if carriers` pricing and capacity discipline weakens further."


The London consultants also forecast the global container fleet will increase 8.5 per cent this year because many larger 8,000-TEU boxships will be delivered. But the cargo growth is estimated to rise only 7.4 per cent.


The Drewry report suggested ocean liners be "extremely careful in their deployment strategies if they are not to upset the supply-demand scenario," noted Newark`s Journal of Commerce. Some leading carriers have started ordering new vessels, which would likely to worsen the overcapacity problem in near future.