Those are the key conclusions of Nomura Equity Research in its latest global shipping review, which predicts that average freight rates will decline by 15% between July and the first quarter of 2013.
The confluence of container freight rates heading down, oil prices going back up and a higher number of newbuilding deliveries next year"is likely to result in a difficult outlook for the container shipping sector", Nomura warns.
"Further, with the container shipping sector already profitable, we are seeing signs of rates being discounted, given weak demand."
The report, prepared by a team that includes Mark McVicar, one of the most experienced analysts in the industry, questions whether container lines will remain disciplined and control capacity as effectively as they have done so far this year.
"We are sceptical, however, given that newbuilding deliveries have yet to peak, and carriers are no longer fighting for survival," the firm says.
Nevertheless, Nomura anticipates that container shipping will be profitable in the years 2012-2014, reflecting better than expected rate recovery efforts in recent months and lower costs.
Whether rates can be maintained at the highs reached last month is doubtful, however. Nomura has noted evidence of renewed attention on utilisation levels rather than profitability.
With most lines back in the black in the second quarter, "we sense their focus is no longer primarily on pushing rates higher,Ħħ the report observes. "As such, we could see a sharp downward rate spiral, especially with the peak season likely to disappoint."
Several container shipping bosses have said there has been no peak on the Asia-Europe trades this year, prompting several carriers to take the unprecedented step of blanking sailings to avoid swamping the market with too much capacity when demand remains weak.
Nomura says it has been "pleasantly surprised" by the effective capacity management discipline that lines have demonstrated this year.
"But we think it will be difficult for them to remain disciplined in 2013, given that we expect supply to continue to exceed demand growth."
Despite its cautious outlook for the container trades, Nomura says investor value still exists for profitable shipping lines trading at low valuations. It singled NYK out as a buy stock, helped by its stable car-carrier profits, lower dry bulk losses and profitable non-shipping businesses.
In the pure container sector, it singled out Hong Kong's OOIL group, owner of container line OOCL.
Nomura also notes that AP Møller-Maersk's second-quarter results were better than forecast, underpinned by Maersk Line returning to the black with a modest profit.
But the aim of a return on invested capital of 10% for the whole group will be a difficult to achieve, Nomura reckons, given that Maersk Line is only producing 4.4% annualised result.
Although this was the first positive number for five quarters, Nomura nevertheless cautions that the group target will present management with its "biggest" challenge.
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