03 Sep 12 - 10:43
Container shippers are turning more upbeat on their prospects. Some have even raised their profit guidance for this year as container freight rates moved higher and have recovered to healthy levels seen in 2010.
But some analysts Channel NewsAsia spoke to said it may not be smooth sailing for the industry going ahead.
Recently, container carrier Maersk Line reported that it has returned to
Recently, container carrier Maersk Line reported that it has returned to
profitability in the second quarter and its parent A.P. Moller-Maersk has now raised its profit guidance for 2012.
The tide of fortunes may be turning higher for container shippers.
Third quarter of the year is traditionally the boom season for transporting goods and this means more business for the ship owners.
Coupled with rising freight rates, container liners may be looking to book higher profits for 2012.
Analysts said freight rates have recovered to 2010 levels after the global shipping industry has been hit by weak demand due to the world economic slowdown and an oversupply of vessels in the last four years. Some are also expecting higher average rates in the second half of the year.
But some analysts warned that it's still early days to celebrate.
With a slowing world economy, downside risks remain for the container shipping industry.
DBS Vickers' analyst, Suvro Sarkar, said: "It is tough to maintain any significant profitability in the current situation. Probably third quarter will be a peak as far as profits are concerned. They may record some profits because of the higher rates earlier this year, but this will probably be the peak for now. Liners will have to increase rates by another 10 per cent if they want to see profitability that they had in 2010."
Higher bunker fuel prices is another risk factor for container shippers.
Currently at about US$673 a ton, bunker fuel prices are about 40 per cent higher compared to 2010.
Yet, they are expected to increase further by between US$600 and US$700 this year, according to a forecast by ICAP Plc.
Phillip Securities' investment analyst, Derrick Heng, said: "Fuel costs will definitely still be an issue. Current levels of bunker prices are still too high, relative to historical numbers. But again, industry level, you look at new orders coming in, you are seeing larger vessels, on average the top 10 largest carriers have order size that is around 2.4 times the current fleet. With larger fleet, larger vessels, you would derive economies of scale, lower your unit slow cost as well."
But more fuel efficient ships could add to oversupply - a problem in maintaining freight rates.
Some analysts note adding mega container ships could lengthen the downcycle, with freight rates to be seriously challenged by 2014.
Source: CNA
