The supply-demand gap is widening and industry load factors are worsening, making it that much harder for carriers to stem the freefall of freight rates, Drewry Maritime Research warns in a new analysis.
In its latest “Container Forecaster” report, the marine consultancy says container lines are caught in “a toxic mixture of overcapacity, weak demand, and aggressive commercial pricing all colluding against them.”
Drewry explained that the higher the load factor, the better the conditions are for carriers to be able to push through general rate increases (GRIs) and secure better contract terms.
“Sadly, for carriers at least, industry load factors are worsening,” it said. “Lower cargo volumes and an inability to address supply have made their mark.”
The report noted that its updated first quarter 2015 data shows that, adjusted for void sailings, the average load factor across the main headhaul East-West trade routes was 86%, down from 90% in the previous quarter and from 89% a year ago.
While 86% should not automatically be considered a disaster, it has had the effect of “making the lines completely forget about any rational pricing strategies and chase the rates down week on week in a vicious spiral,” Drewry said.
Following capacity management by shipping lines in the recent past, for the second quarter in a row, there is a noticeable supply gap over demand, it added. Carriers were helped by the unexpected cargo surges seen on headhaul trades last year, but these now appear to have evaporated.
Average load factors in the North-South trade lanes remain below 70%, and for the first quarter there was an excess of supply over demand of more than seven percentage points.
Data further shows that global first quarter average load factors fell to 83% from 87% in the previous quarter and from 85% a year before, said Drewey.
“A tipping point in ship utilization has been reached that is sending freight rates to the floor and making it almost impossible for carriers to hold on to any temporary GRI-induced gains.”
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