We see two major drivers in 2012 that will produce critical changes in carrier alignment and dynamics. The planned increase of vessel supply will remain a great burden to the market in 2012, with vast majority of capacity growth to come from upsizing of the operated vessel class.
Another ongoing challenge for liner companies is the relatively higher bunker cost, which is projected to not budge downward and may even increase in the foreseeable future. Major competing carriers have invested and ordered for delivery of larger size vessels to reduce the cost per slot, but such expansions have resulted in over-supplied market conditions in the short term translating into rate levels below the round trip cost. As the market continues to decline, capacity expansion with delivery of larger size ships continues to further cope with higher slot cost vs. lower freight rate levels.
With sequential delivery of vessels of in both new Panamax and ultra-large sizes, the deployment and cascading impact on the liner industry serving U.S. market will be more severe than in any previous years. Attaining any credible advantage over competition has become more difficult in recent times, with both individual carriers and carrier alliances providing common services.
To further cope with competitive and cost challenges, service lanes with higher slot cost will likely need to be augmented by forming various types of allied relationships with competing carriers. These relationships will take on variety of forms that will move beyond the current carrier and alliance composition, shaking up the service offerings to the end users in 2012.