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Evergreen shrugs off conservative cloak

Posted to Far East Maritime (by on April 26, 2012

Taiwan’s biggest container shipping line has seized an opportunity to ramp up its orderbook at fire sale prices.

Working out supply and demand is a tricky business at the best of times, so trying to predict the container shipping market a year or two in advance is as good as sucking a thumb and writing down the first thing that comes to mind.

Looking at an Alphaliner chart of current vs ordered ships, one thing is immediately apparent: the ordered capacity is greater than the current fleet, and by a considerable amount, too.

Of the top three carriers, Maersk will grow its TEU capacity by 18 percent, MSC by 17 percent and CMA CGM by a remarkably modest four percent.

But it is halfway down the world’s top 10 container lines where the surprise can be found. While most other carriers piled in and ran out their orderbooks over the past few years, Taiwan’s top shipping line Evergreen played it cool.

Taking a conservative approach when all its peers were ordering like it would soon be outlawed says a lot about Evergreen’s ability to stay its course while competitors were all out chasing down market share.

That approach paid handsome dividends after the banking crisis. However, the Taipei-based carrier appears to have shaken off the conservative attitude to ordering ships and is now up with the “go big or go home” crowd. It has dusted off its orderbook and run it out to an incredible 69 percent of its current fleet. The carrier will lease 10 ships of 13,800 TEU that will start floating into service from the fourth quarter of 2013.

The size of the ships and the number ordered is enough to raise eyebrows. Raising them even further is the price Evergreen is paying. Alphaliner puts it at US$115 million each, a record low for ships of that size and 30 percent down on 2007 prices. A sweet deal, indeed.

Of course a discount is welcome when spending more than US$1 billion on vessels, but even a cheap ship needs to be filled. And a lot will depend on the state of the container shipping industry by the fourth quarter of 2013. That is more than a year away when no one even knows what will happen to the rates from next week. Specifically on May 1, the next GRI date.

The carriers are no doubt buoyed by the percentages of the recent increases that have managed to stick. That it will continue is probably wishful thinking as the idled tonnage is fast coming back online and an unhealthy amount of new capacity is being delivered. The downward pressure on rates will be immense with shippers, already grumbling at the sharp hikes in the last two months, sure to strongly resist the latest round.

But that’s all short-term stuff. By the time Evergreen’s big ships start being delivered container shipping may be heading back to the top of its cycle and the whole industry could be back in the printing money business.

Or maybe not. Maybe Europe will melt down, the emerging economies will slow, stagger and fall and the world’s carriers will slide into a hole in the ground and slam the lid closed behind them.

Now isn't that a cheerful thought.

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