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Aggressive pricing by Ultra Large Container Ship (ULCS) operators threatens Asia-Europe rates this year and next, according to freight and logistics news service IFW.

The introduction of ULCSs is the primary driver of bearish Asia-Europe container freight rates this year, according to one leading analyst, who told IFW the market could further deteriorate in 2012 when deliveries peak.

Janet Lewis, Regional Head of Industrials & Shipping Research in Asia at Macquarie Capital Securities, said that overall demand on the Asia-Europe trade had been “robust” this year but the deployment of ULCSs of over 10,000 TEU capacity was having a “disproportionate” impact on the market.

“There’s pressure from owners to fill them,” she said. “If you replace an 8,000 TEU capacity vessel with one of 12,000 TEU and you want 90% utilisation, then there’s the temptation to discount because your cost per TEU is lower.

“We believe that operators who have introduced the new vessels have been aggressive in pricing to attract cargo, putting more pressure on the Asia-Europe routes.”

All-in spot rates on services from Shanghai to northern Europe were down to USD$892 per TEU last week, less than half of the rate a year earlier, according to the Shanghai Containerised Freight Index (SCFI).

Last week Maersk announced it would postpone by a month a US$500/FEU General Rate Increase (GRI) originally scheduled to take effect from today (1 June) because it did believe it could succeed in the current market.

Lewis predicted liner performance would improve as the year progressed. “We’ve had a lot of deliveries in the first half of the year but demand will be higher in the second half, particularly during the peak season in July to September, so performance will improve,” she said.

However, the recovery could be brief. According to Macquarie’s latest ‘Asia Shipping Pulse’ report, ULCSs with total capacity of 350,000 TEU are scheduled for delivery this year, but this will increase to over 750,000 TEU of vessel capacity next year, representing more than half of all anticipated container ship deliveries in 2012.

“That suggests that rates on the Asia-Europe route could remain weak in 2012 when deliveries of ULCSs are likely to peak for the near term,” said the report. — Source: ifw-net.com

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