Shipping lines turn on capacity as volumes surge

Ocean freight will continue to boom in 2004 driven by the buoyant Asia Pacific market according to the latest report on the sector. The authors of the report, Nikko Citigroup, estimate that container traffic leapt by 21.2% in the first quarter of 2004, following a rise of just over 19% in 2003. Growth in ocean bourn trade, especially outbound to Europe, has been fuelled by relatively weak local currencies and increased out-sourcing of production facilities to the region by European manufacturers.

However the authors also strike a cautionary note. The report forecasts that supply will outstrip demand by the end of the year as more capacity is brought online by the carriers. It is estimated that there will be a net increase of 70 container ships on Asia Pacific – Europe routes by the end of the year, and 44 on the Asia Pacific – North American trade routes. Dependent on the rate of growth of exports, rates could soften in 2005 bringing a welcome relief to shippers and freight forwarders whose margins have increasingly been squeezed.

Whilst concerns over the medium term growth of the industry remain, shipping lines are still exploiting the present market conditions. Neptune Orient Lines (NOL) reported a 20% surge in year-on-year volumes in June. The company stated that it had initiated extra capacity on key routes for the forthcoming peak season. However despite this extra capacity, average freight rates still grew by around 3% year-on-year to $2,673 per forty foot equivalent unit (feu).