While brands and retailers see the pains of the recession easing this year, ocean carriers that get their goods to market are still girding for potentially massive upheaval.
Carriers such as Maersk, APL Lines, Evergreen Line and Hanjin Shipping are facing myriad issues that are expected to linger throughout 2010 and beyond, including overcapacity of ships and containers, rising fuel prices and low freight rates.
During the annual Textile & Apparel Importers Trade & Transportation Conference held in New York in November, executives from APL and Hanjin stressed their companies had taken all possible measures to reduce their losses. Ships have been scrapped, slowed down, idled for months and had their service patterns altered. Companies are also delaying the delivery of new ships. Still, they expected to see bankruptcy or consolidation among carriers as a result.
“There are too many ships chasing too many containers,” said Robert Sappio, senior vice president of Pan American trade for APL Lines.
The oversupply was exacerbated by the global recession and as a result ocean carriers failed to maintain freight rates at a level that would ensure survival. This has been particularly evident in crucial Trans-Pacific rates.
“Rates fell to ridiculous levels last year and, frankly, the carriers were their own worst enemy,” Sappio said.
William Rooney, president of Hanjin Shipping America, said Hanjin has cut its trans-Pacific capacity by 15 percent, laid up 14 of its ships and delayed delivery on 10 more.
The Transpacific Stabilization Agreement, or TSA, a collective of 15 major container shipping lines that negotiates rates from Asian ports, kicked into crisis mode as 2009 came to a close. On Dec. 15, the TSA said it would institute an “emergency revenue program” during the first half of 2010 in advance of annual freight rate negotiations that traditionally kick off in March.
“With every major trans-Pacific carrier suffering massive losses reaching into the hundreds of millions individually, and estimated at $20 billion collectively for 2009, lines say they cannot afford to carry current rates forward another six months until the new round of 2010-11 contracts is signed,” said the TSA.
As of Jan. 15, TSA began charging $320 per 20-foot container, or TEU, and $400 per 40-foot container, or FEU.
“Without some improvement in the economics of this trade in the very near future, [ocean carriers] will be left with some very tough choices that involve either moving even more aggressively to individually consolidate or reduce the number of services now offered, or incur further losses that in the longer term are simply not sustainable,” said Ron Widdows, chairman of the TSA.
According to a recent report by AXS-Alphaliner, a service that tracks the container shipping industry, more than 10 percent of the world’s container fleet is idle, or 1.44 million TEU. That number is not expected to reach its peak until 2012 when the number of idle TEU could exceed 1.6 million. At the same time, new ships continue to hit the seas. Alphaliner predicts the global container fleet will rise 3.7 percent to 5,086 ships in 2012 compared with 4,905 ships this year. The global fleet’s capacity, however, will grow even more, thanks to newer and larger ships being added. Alphaliner forecasts the number of TEU to rise nearly 16 percent to 16.6 million TEU in 2012 compared with 14.3 million this year.