Analysts: Rate leap euphoria will be short lived

Expectations are high for the combined Maersk Line and Group for the impending quarterly financial statements on May 16th. But the shipping companies’ attempts at pulling ships out of the global fleet are already faltering.

Maersk Line and the other container shipping companies on the important trade routes will come under renewed pressure already this year, even though massive rate increases have been successfully implemented over the past months. This is the estimate of a series of stock analysts ShippingWatch has spoken to ahead of the May 16th announcement of the A.P. Moeller – Maersk financial statements for the first quarter of 2012.

SEB Enskilda even talks about a price bubble that is about to burst.

“What we are seeing now is a completely natural reaction. The shipping companies have pulled a lot of capacity out, which means they are starting to make some money. And since having ships laid up means losses, they will start putting the ships back into service. This is the process many of them are in the middle of right now, and at some point it is going to tilt. This process is very difficult to control, even for the big alliances. This is why we expect that the rates will start to drop,” says Nikolaj Kamedula, SEB Enskilda.

Rates under pressure at the end of the year

Nykredit Markets estimates that the pressure on the rates will increase by the end of the year.

“Our biggest concern right now is the question of how many ships will be sailing. Quite a lot have been added in the first quarter, and more will come in the second quarter. Many of them are ships of 10,000 teu and above, and there is only one place for them: Asia-Europe, which makes up approximately 40 percent of Maersk Lines operations. This will put pressure on the agreement on - and the quiet acceptance of - increased rates,” says stock analyst Ricky S. Rasmussen.

“I am not so worried about the peak season from August till October. On the other hand, I am worried about the time after October. At that time, I would very much like to see the shipping companies begin to take some of their ships out of the market, because, as it is now, it does not look like the demand will be able to follow the amount of available tonnage. Right now, the general agreement about the increased rates is working. At the same time, we have had as much as 5.5 percent of the world market capacity in layup, but that number is now dropping, and it would be bad if the shipping companies start to use this situation to add capacity to the market to start competing on prices again. Then the agreement will go out the window and we will have a new price war on our hands. That is the real danger.”

Maersk profit upgrade

In spite of ominous prospects for the major shipping companies this year, Nykredit, as well as Alm. Brand Bank, expect a profit upgrade from the combined Maersk container business and group.

“In light of the recent rate increases, I will have to further raise my estimates. I expect a fairly large profit upgrade of Maersk as a whole. This is primarily because the oil division has announced that they will receive USD 900 million following a court ruling in Algeria. This ruling, combined with Maersk Line, who looks set to announce a zero result, corresponding to a minor profit upgrade. Maersk will announce a result at the level of 2011,” says Ricky S. Rasmussen of Nykredit Markets.

According to the most recent statement from Alphaliner, on Monday, the laid up fleet has dropped to 620,000 teu at the end of April. Alphaliner predicts that the laid up fleet will drop further, down to 350,000 teu by July, after which the container shipping companies will again start laying up capacity. Alphaliner believes that the total capacity could reach 1 million teu by the end of 2012.

“I hope that we won’t drop all the way down to 350,000 teu in laid up tonnage, and it would be nice to reach more than 1 million teu by the end of 2012. At 1 million at the end of the year, the rates will come under renewed pressure. Unfortunately, high rates make it tempting to reinsert capacity. A vicious circle,” says Ricky S. Rasmussen.

Between Asia and the American West Coast, the shipping companies’ plans for new capacity will lead to an 18 percent growth in capacity over the next months. On the route to the East Coast, capacity is expected to increase by approximately five percent. Between Asia and Europe, two new services will start operating in the near future, increasing capacity by approximately five percent.

Stock analyst Dan Togo Jensen, of Handelsbanken, says that the rate level is peaking now, after which it will begin to seep.

“Too many ships are not performing as well as they should. And hungry ship owners are going to start giving discounts. We will not see a significant drop, rather a slow seeping throughout year.”

SeaIntel: 74 giant container ships in pipeline 

More from ShippingWatch

MPC upgrades 2022 guidance after strong first half

MPC Container Ships reports continued advancement in Q2, raising guidance for its operating result to almost half a billion dollars. High rates will continue for several quarters yet, the company expects.

Related articles

Latest news

See all jobs