Freight rates to stay soft, says OCBC

Large liners are insistent but lack actual enforcement, adds OCBC.

4Q freight rates for Neptune Orient Lines (NOL) have fallen by an average of 8.8% QoQ for the past three years so FY13 should prove no exception, says OCBC analyst Lim Siyi.

The analyst notes that un addition, with demand typically tapering off in 4Q, the ability of liners to implement rate hikes should subside as well.

"Despite the rhetoric of the larger liners insisting on another round of rate hikes for Nov, it is our view that actual enforcement will be lacking. Substantial collective action remains wanting – especially with liners clinging on to
the notion of protecting their respective market shares – and so we expect freight rates to stay soft," says Lim.

According to Lim, the unwillingness of the major liners to cut capacity further and idle ships to address dropping rates pose significant problems for a 2014 turnaround. Even NOL’s own projections back in 2Q13 show a demand-supply gap till end-2014, adds Lim.

"With the addition of larger ships and pre-crisis ordered vessels coming on board, the industry will continue to suffer from its bad decisions well into 2015," says Lim.

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