LONDON: Maritime advisory organisation Drewry says the industry remains in a down cycle for the first quarter of 2014 caused by a "vicious cycle" of rate volatility and the introduction of new ships to reduce slot costs.

This is despite void sailings, scrapping, idling vessels, slow steaming and new operational alliances and mergers in a bid to balance supply and demand.

The company says the balance on north/south trade routes is being hurt by the introduction of many new ships with at least 8,000 TEU capacity that has resulted in significant declines in spot freight rates, particularly on the Asia to East Coast South America trade.

Despite the reduction in slot costs from larger vessels, it notes the continued market imbalance coupled with the desire by operators to protect market share is a "toxic mix" for profitability in a year where global demand is expected to rise just four percent.

With the industry focused on reducing costs, Drewry considers Maersk Line the "best in class" in a sector that will see a 5.7 percent growth in global capacity in 2014, followed by 6.7 percent next year, as 115 more ULCVs and a large number of ships in the 8,000-10,000 TEU category are delivered. Drewry notes NYK and Cosco are expected to place new orders soon while CMA CGM plans to upgrade some of its ships to carry 18,000 TEUs.

Neil Dekker, Drewry's head of container research commented: "Two major fights will continue for the carriers this year – to win contract and spot business. The larger battle will be waged in the spot market arena, which suggests that rate volatility will continue for the time being."

Despite scrapping rates are at record levels, Dekker says vessel deliveries in the next 24 months means carriers will have little long-term success with general rate increases and that many contracts in the core east-west trades have been signed at the same level or lower than in 2013.