Freight rates are in healthy state of recovery, but container shipping still faces "uncontrollable costs" that threatens profitability, says a paper from Lehman Brothers Global Equity Research.
The report also said tonnage supply was easing. "The large and visible supply imbalance overhang persists, but supply growth has peaked and is beginning to slow down. Carriers continue to place orders for new vessels but delivery is slated for late 2009 at the earliest, more likely 2010-2011," the paper said.
"Freight rates have rebounded since the beginning of the year due to a correction from an over-reaction last year," said the analysts at the international bank. "We believe freight rates are likely to continue to increase gradually over 18 months and rebound stronger in 2009 due to demand exceeding supply growth."
"We believe container shipping lines are likely to see strong revenue growth (robust volume and improved rates), but a weak bottom line due to higher uncontrollable costs. Nevertheless, we believe that we are at the start of a sustainable rate recovery," said the Lehman Brothers analysts.
Margins are likely to remain under pressure this year, they said because of cost inflation. "Not only terminal handling charges and inland transportation costs, but bunker fuel prices are increasing. 1H07 results are likely to be weak before an earnings rebound in 2H. We believe the market is already expecting weak interim results," they said.
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