Idle Ship Capacity Falls–Will Freight Rates Fall Too?

 In export, import, International Shipping, ocean freight

Alphaliner tells us idle ships are hitting the water!

The summer peak season is on the way and carriers are getting ready for it by reactivating ships from the idled fleet.

Carriers have succeeded in increasing freight rates in 2012. According to Alphaliner, there has been “a 38% gain in average freight rates on the CCFI since January.” But remember the recent blog we posted about the possibility of decreasing freight rates?

The name of the game recently has been capacity.

Overcapacity brought low freight rates in 2011. Too low for carriers. They lost money in the billions.

Reactivating the idled fleet too much, too fast could cause freight rates to tumble again. That would be a stumble backward carriers can’t afford who need the increases of freight rates in order to have profitability.

Alphaliner says the idle containership fleet dropped to 620,000 teu at the end of April from 913,000 teu in mid-March. Furthermore, they inform us that the idle containership fleet is expected to drop under 350,000 teu by July.

Of course, the idle containership fleet being low does not necessarily mean low freight rates.

Alphaliner points out that “the containership fleet has enjoyed close to full employment prior to 2009.”

Just like in all business, what matters are the supply and demand proportions when it comes to affecting price.

Container Vessels LoadingReturning ships to active duty on the seas comes along with added services for the summer peak season. That certainly makes shrinking the idled fleet seem quite reasonable. You’d expect more ships on the sea. I wouldn’t expect to see carriers allowing freight rates to drop soon.

But they’re volatile waters that ocean freight rates sail in. Many factors affect prices for international shipping of containerized cargo. No one knows exactly what freight rates will do.

What we do know, thanks to Alphaliner, is that the idle fleet has fallen from 5.8% capacity of the total fleet out there to 3.9% of total fleet capacity and that number is expected to continue to drop.

Will demand rise fast enough to meet that? Can carriers maintain their freight rate increases if it does not? These are just two of the many, many questions to which we are yet to see the answers.

In the meantime, keep importing and exporting and Universal Cargo Management will get you the best freight rates we can.

Alphaliner is an information platform for shipping professionals.

Universal Cargo Management in a freight forwarder with over 25 years experience serving international shippers like you

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