Drewry raises alarm about over capacity on Asia-Europe run

LONDON's Drewry Shipping Consultants issued a warning recently over excess capacity building in next two years on the Asia-Europe trade.

In a report on the worldwide container market, Drewry's head-haul east-west trades supply-demand index predicted a weakening of the balance of the core trades in 2009.

"The industry should be wary of underlying economic factors which may undermine the balance even further by 2010 when the first of the new 10,000-TEU ships are deployed in the Far East/Europe trade," said the report.

"By the time many of these vessels are delivered in 2010 and 2011, the Far East-Europe boom would have had to last for five to six years and to continue to do so while the new ships bed in. With the inherent weakness displayed by the transatlantic and transpacific trades now and in the short to mid-term at least, this is a great deal of pressure for one trade lane to bear."

At a September conference organised by the Hong Kong Shipping Gazette, carrier executives said that overcapacity was not a concern since practical capacity would not approach the levels of nominal capacity, which most analysts use to forecast supply and demand.

But at the same Hong Kong conference, Jim Lam, executive director at Morgan Stanley Asia, said he wondered whether carriers would overindulge in Asia-Europe trade boom. "Will carriers move smaller vessels from the transpacific to Asia/Europe in the slack season? Will they be tempted by the big profit margins in Asia/Europe, or will they dry-dock vessels?"

Said the Drewry report: "At present, the liner industry is optimistic on the back of buoyant demand growth in the Far East to Europe and Mediterranean head-haul trades. This has helped to fuel the recent investment surge in super post-Panamax vessels. The 20 per cent-plus head-haul trade growth in evidence for the first half of 2007 has led to a firming of freight rates and has contributed to improved profitability for many ocean carriers."