Monday, October 29, 2012

Container Shipping Rates Rise as Overcapacity versus Available Freight Problems Continue

A Round Up of How the Big Box Carriers are Fighting Back
Shipping News Feature

WORLDWIDE - Up, Up and Away seems to be the anthem which the major container shipping lines are playing at the moment as once again the cycle of rate rises begins to attempt to compensate for the continued overcapacity available to shippers, particularly on the Asian routes to Europe. Virtually every carrier is increasing charges on 20 foot and 40 foot boxes after the last round of such increases was slowly eroded as the lines scrabbled for business. As we have pointed out previously rate increases only work if those imposing them maintain the will to hold them, as soon as one line starts to offer cuts to increase their share of the trade the floodgates can open and the mad scramble to take on cargo, even if only to reduce losses, can begin.

The complexity and range of the current increases is simply staggering to most observers but whilst the major lines report cuts of over 30,000 availabe TEU on the Far East/European services which some analysts state will help companies achieve their forecast profits, closer examination casts doubt on this assumption. The largest of the box carriers, Maersk, asserts that it has cut container numbers yet the introduction of the ‘Daily Maersk’ service, outlined here in detail when the tactic was first announced, was a clever attempt to introduce the sort of guaranteed service prevalent in other branches of shipping and surely depends on sufficient boxes loaded and ready to fill the huge Triple E vessels to a level of economic viability.

Maersk of course charge a surcharge for their guaranteed deliveries, with the promise of penalty payment should they feel to achieve these and their performance figures suggest they have not had to pay out too often. The likelihood is of course that means that space is almost always available on these sailings and the key performance indicators (KPI) don’t show the really key figure, the profitability of the round trip voyage.

Maersk upped its 20’/40'/45’ high cube dry box rates by US$500, $1000 and $1000 respectively in a General Rate Increase (GRI) on the Far East Asia (excl. Taiwan) to East Coast South America services on the 15th October. The company’s reefer base rates right across the globe are going up $1500 per forty foot equivalent unit (FFE) on the 1st January 2013 and in between is a whole smorgasbord of increases to and from Europe, the Indian Subcontinent, the Mediterranean, Syria and the far East all viewable HERE.

Meanwhile the picture elsewhere is similar with MSC applying a GRI from Asia and the Far East to West Africa and Angola as of November 15th, 2012 of $150 per TEU, reefer increases of $1000 per TEU and $1500 per FFE from any European trade zone (NWC, the U.K., Scan/Baltic, West and East Med., Black Sea) to any destination in the Middle East (Arab Gulf) or in Asia (China, Southeast Asia, Korea, Japan)again as of January 15th, 2013 plus a host of other rises HERE.

CMA CGM has increased a bunch of rates, some from last month and earlier this but with more to come, principally GRI’s on all Asian ports (including Japan, South East Asia and Bangladesh) to all Northern European ports (including UK and the full range from Portugal to Russia) by $500 per TEU dry cargo, OOG's (Out of Gauge), paying empties, break-bulk and reefer boxes from the 1st November.

COSCO also will up rates from the 1st November with a GRI on all UK Export rates to Far East, Japan and IPBC destinations together with numerous other adjustments including all US ports and Canada intermodal tariff changes from the 1st December details HERE and so the story continues with announcements here from ZIM, MOL, K LINE, OOCL, Hapag Lloyd, UASC, NYK etc.

The message to shippers then is simply shop around, whilst the lines must retain a semblance of order by maintaining rates which will allow them to continue operating it may well be that this battle for profitability may once again be undermined by the sales teams’ desires to obtain business at an unreasonable cost to their company and market forces produce a survival of the fittest situation.

The key, as always, will lie with the balance between the larger corporate bodies who simply fix advance rates with the lowest bidder amongst the liner companies, and the ad hoc business on which this current round of increases will, certainly at first, be imposed. There have been calls from some quarters for a complete change in how the container freight business operates with charges aligned as is done with bulk cargoes at a market devised for the purpose. It is hard to see the practicality of such a scheme, containers are exactly that, small units of freight, sometimes shipped as individual orders, sometimes as a bulk purchase either together or over time and therefore we must wait and see this current scenario play itself out as we have so many times before.