efit shippers initially, “they will ultimately lose out in terms of reliability of service, as carriers then seek to cut services and change or reduce port pairs,” the quarterly review says.

Simply put, this is the worst year in the history of container shipping.

“While our numbers are estimates — for example, the price of oil for the rest of 2009 is not easy to forecast — our analysis shows that the container sector is looking at a $20 billion black hole,” Dekker said. “So we can expect more casualties.”

The basic make-up of the industry will change as companies fail, amalgamate or shrink, shedding assets and personnel in the process, “hardly a positive if it means experienced personnel will be leaving the industry,” he said.

The carriers are caught in a trap of their own making because they are torn between the desire to maintain market share by cutting freight rates and the need to build revenue and gain some semblance of operating income.

“The general tendency of the carriers is to still go for market share by cutting rates. In the current circumstances, let’s be honest, it doesn’t make a lot of sense,” Dekker said.

The trap has hit hardest in the Asia-Europe trade, where carriers have been deploying scores of huge new container ships ordered in recent years. By last winter, carriers had cut rates so low that the spot rate was effectively zero, when surcharges for bunker fuel were excluded. Carriers were essentially transporting containers for the cost of the fuel it took to carry them, with nothing left for other expenses, and certainly nothing for this year’s scarcest commodity: profit.

Major carriers increased rates by about $1,500 per TEU in April, but other carriers seized the opportunity to grab more market share. “Pretty much all of that (the April increases) was eroded by the time the end of June came, so they were starting from scratch again,” Dekker said.

The carriers announced another general rate increase, effective July 1. It’s too soon to tell whether this one will stick, but Dekker is not optimistic. “If you’re trying to bring that in on one hand and on the other hand you’re cutting rates to maintain market share, you’ve got two forces that are going in the opposite directions,” he said.

The forces determining rates in the trans-Pacific are slightly different. Rates on the spot market, which are usually only somewhat lower than the rates negotiated in the annual contracts with shippers, are the tail wagging the dog this year.

“By the time the contracting process was in full swing, spot rates were way below contract rates, so carriers had already lost a lot of ground because shippers weren’t going to agree to higher rates than they could get on the spot market,” Dekker said.

Drewry estimates that average contract rates for trans-Pacific contracts starting on

CONTAINER SHIPPING’S SLIPPERY SLOPE

■ 2009 volume forecasts for major trades, in millions of TEUs.

VOLUME PERCENT CHANGE

FROM 2008

Eastbound Trans-Pacific 11. 46 - 14.20%

Westbound Asia-Northern Europe 7. 50 - 17.40%

Westbound Trans-Atlantic 1.96 - 11.90%

Source: Drewry Shipping Consultants, www.drewry.co.uk

July 1 fall in a band from $950 to $1,100 per FEU, including all surcharges. It estimates all-water contract rates from Hong Kong to ports on the U.S. East Coast range from about $2,000 to $2,300 per FEU, including all surcharges.

“Big-volume shippers can get significantly lower rates than these,” Dekker said. “Even companies with fairly low volumes on an annual basis are getting fairly decent rates because the carriers are just going for volume rather than yield or profitability.”

Dekker was speaking before the Trans-pacific Stabilization Agreement announced that its 14 members in the eastbound trade would seek a $500-per-FEU increase on Aug. 10. The carriers would have to take the unprecedented step of renegotiating service contracts, most of which they signed with their shipper customers less than t wo weeks ago.

The failure of a really big carrier may jolt the rest of the industry into maintaining pricing discipline. “But if you look back over the last 40 years, the carriers don’t appear to have learned their lesson,” Dekker said. “They have never had a period where they have had a decent profitability over a sustained period.” JOC