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Rates improving, but recovery remains uncertain

Improvements in ocean container rates should not fool the industry into thinking an industry-wide recovery is underway, according to consultant Drewry’s latest report.

Neil Dekker, editor of the Drewry Container Forecaster report, said that the shipping industry would be in better shape if some lines had gone bankrupt last year.

“Several large container operators would have gone to the wall in 2009 if major benefactors or governments had not stepped in to bail them out.”

“There is a strong argument for thinking that if a major carrier had been allowed to fail, the market would have had a much better opportunity to correct itself and lay the foundations for a more profitable industry in the long-term.”

“A fairly large chunk of capacity would have been taken out of the market, allowing load factors and freight rates to improve.”

The report said the worst of the recession was over and forecasted global container traffic to increase by 3.4% this year.

Meanwhile, rates on the core Asia-Europe trade reached US$1,700 per 20ft container in late 2009, thanks to an 11.6% reduction in global capacity, but even this is only just at break-even point.

Drewry forecast that all-in rates in the key east-west headhaul routes would improve by as much as 14.1% this year, but this also had to be set against a 2009 decline of 26.2%

The report also warns that if carriers continue to struggle this year, they may find it harder to find funds from shareholders and banks.

Dekker said: “Even if the industry can secure the same amount of fresh cash in 2010 as it received from shareholders in 2009, it will not be sufficient cash to cover its needs.

“Another estimated US$1.4bn of cash may need to be found from other sources to keep the carriers trading.”

“What would happen if the banks or the shareholders refuse to inject more cash? There seem to be three scenarios: either the carriers are liquidated, causing financial harm to shareholders, suppliers and banks or carriers walk away from vessel orders with shipyards, causing damage to the shipyards, or governments are forced again to rescue the carriers.” -IFW

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