There is an old saying about boats: ‘they’re just a hole in the ocean to pour money’. And with really big boats, say container ships, it’s not only the one huge hole in the ocean but also a couple of landside holes to boot. Which begs the question, what’s propelling a rebound in containership orders? By George Lauriat, Editor-in-Chief, AJOT It was a bad year, a very bad year. CC Tung, the Chairman of Hong Kong-based OOIL (OOCL’s parent), when announcing the group’s $400 million loss, unequivocally labeled, “2009 presented the worst market conditions ever experienced in the container shipping industry.” His remarks were dittoed throughout the industry as box operators went into survival mode. To the operators, the ‘supply chain’ must have felt like an anchor chain with each link by grating link, threatening to pull them deep into the depths of a dark red sea, a fate that could only be avoided by the most desperate of measures. Those desperate measures included the unthinkable: laying up the very containerships from which they made a living, rationalizing schedules, bypasses, joint services, personnel layoffs, office closures and relocations, ship scrapings, cancellations or delaying of newbuildings and cost shaving tactics like slow steaming (SS), extra slow, steaming (ESS) and super slow, steaming (SSS). But a strange thing was happening while the ocean carriers tried to slow the inexorable pull of declining sales, a global restocking of inventories began in the fourth quarter of 2009. Like a tsunami racing ashore on a perfect day, it unexpectedly overtook the ill prepared ocean carriers, pressing them to match ships and equipment to the surge. The carriers reacted slowly, and in trade lanes like the Asia to US West Coast and Asia to Europe, shippers were angry when their freight was late or worse, left on the piers. US exporters found it difficult to find ships or equipment to handle their own spike in shipments (see “Conundrum of supply or demand” page 1, Feb. 22nd 2010). At one point in time during the recession, analysts estimated that in TEU terms, 12% of the entire box fleet was laid up. According the box ship analysts at Alphaliner, on March 1st the laid up fleet amounted to around 1.24 million TEUs or 9.4% of the total fleet, with the 5,000 plus TEU ships coming out of layup at a higher rate than smaller vessels. Taking the appropriate amount of number of ships out of layup and rebuilding the schedules that had been so carefully whittled was hard to do in short order. Secondly, with freight rates climbing, the addition of tonnage could jeopardize “rate restoration” - a move that the ocean carriers viewed as critical to stabilizing the industry as a whole. Finally, there was and is the question of just how long the “restocking of inventory” would carry into 2010. The US Department of Commerce in their April release of February data noted, “Manufacturers’ and trade inventories… were estimated at an end-of-month level of $1,326.4 billion, up 0.5 percent (±0.2%) from January 2010, but down 6.7 percent (±0.3%) from February 2009,” indicating there is still room for restocking. But how much restocking and for how long is still an open question. And while many economists are convinced that the “recession” is over, that doesn’t necessarily mean that containerized freight volumes will immediately return to pre-recession levels. False Spring? Over the past few months the carriers have announced a mind-boggling number of freight rate increases over an equally wide selection of trade lanes and services. It’s probably a little too early to tell whether the rate increases will stick or if it’s a false spring. The ELAA’s (European Liner Affairs Association – the group is being disbanded and bundled into the World Shipping Council) monthly newsletter for April offers some intriguing numbers. Westbound Asia to Europe shows a 2010 February traffic increase of over 55% over February 2009. But there is a word of caution in these figures as F