Fitch sees box trade recovery in rate hikes and ending market share drive

Time:2012-06-13 Browse:48 Author:RISINGSUN
WORLD container shipping is poised for recovery because of more realistic pricing and an end to the damaging quest for market share among major players, according to Fitch Ratings, one of the world`s top three rating agencies.

 

A Fitch bulletin referred to CMA CGM financial results as indicative of a more rational approach to rate setting by the industry. "But they [CMA CGM results] also illustrate how far the industry has to go before a full return to health and this is unlikely before 2014," said the Fitch bulletin.

 

Container shipping performance during the downturn was weak and erratic with dramatic fluctuations in rates, leading to a fall in operating profits since the crisis in the second half of 2008, said the bulletin.

 

"Moreover, the container shipping industry is still struggling to recover from a frenzy of new ship orders placed in 2008, with a large number of new vessels expected to enter the world fleet in 2012-13," said Fitch, reported London`s Containerisation International.

 

"Attempts by some of the major players to address this oversupply - by retiring older vessels, delaying orders, or reducing capacity on key routes - have had limited impact and we don`t expect overcapacity to begin to reverse until 2014 at the earliest," said a Fitch analyst.

 

The agency also singled out higher bunker prices as depressing results. "Although bunker prices have begun to fall from a peak of around US$720 a tonne in Q1 12 to $600 a tonne in April and May, they remain high by historic standards," said a Fitch analyst. "We think fuel costs are likely to continue to depress margins in the near-term."

 

The rating agency also said the drive for greater market share by the big three - Maersk, MSC and CMA CGM - had damaged industry prospects.

 

"This has run its course and companies are shifting focus towards profitability. The size of freight rate increases in March-May is evidence of this and should contribute to an improvement on Q1 12`s negative EBITDA for the larger players," the analyst said.