Containerships could be forced off-hire by fuel costs

SKY-high fuel prices and falling rates will force container lines into off-hiring vessels, according to Neptune Orient Lines chief executive Ron Widdows.

“If these fuel prices stay in the range where they are today, I think you are going to see some fairly substantial service pull backs,” Mr Widdows told Lloyd’s List.

With the trans-pacific trade already seeing volumes contract, and freight rates falling on the Asia-Europe trade, capacity is outstripping demand.

“You’re going to have to reduce the amount of assets employed as that’s only way you have of materially affecting cost. In some of those trade lanes [they are] going to see capacity reductions because carriers are not going to sit on their hands and take a beating beyond a certain point,” he said.

The situation looks particularly bad on the Asia–Europe trade, where large numbers of new ultra-large container vessels are beginning to make their way from the shipyards and into the fleet.

“We are going to begin to see that work a more material way, certainly in the second half of the year with rates deteriorating to the degree they appear to headed for in the Asia-Europe, the capacity is going to have to come down,” he said.

“At these kind of fuel prices you will see carriers forced to reduce services and unload ships.”

Bunker fuel prices have hit record levels recently of around $750 per tonne for 380 cst fuel in Singapore.
“If you were a company that had a large number of very large ships coming that would be a somewhat uncomfortable place to be,” he said.

NOL is one of the few major liner companies to have not ordered ultra-large container tonnage. Mr Widdows said they lack flexibility, as only the Asia-Europe trade is capable of handling such large vessels.

With the US inbound trans-pacific trade contracting and US economic growth unlikely to pick-up in the near term, lines will be unable to redeploy smaller vessels from Asia-Europe to other trades, so will have little choice but to off-hire some chartered-in ships.

This should act to bring charter rates down, but any positive effect will be limited for lines as it will not affect vessels on existing charters.

However, Mr Widdows said that the gap between supply and demand will not be as great as some people fear, as inefficiencies in infrastructure and slow steaming will act to reduce oversupply.