What is going on in the Asia-Europe trade? Freight rates have fallen to “sell the ships and let’s just go home” levels.
Looking at the container shipping rates, it seems that for a carrier to even achieve zero rate would be an improvement. The bunker adjustment factors being charged are more than the rate per TEU, which means the lines are paying shippers to transport their cargo.
That’s very generous of carriers that are known more for extracting blood from stones than for their philanthropy.
The bargain basement rates, of course, are not an early Christmas present to shippers. They are the result of a price war being waged by the top three carriers, Maersk Line, MSC and CMA CGM.
Even OOCL financial boss Ken Cambie criticized the practice in Hong Kong last week during an operational update. He told reporters that the three big carrier’s chase for market share was impacting freight rates.
With demand way down, the only way for rates to improve is if capacity is withdrawn from the Asia-Europe trade. But instead of taking ships out, the top three carriers are leaving capacity in service or adding new vessels to the trade.
The shipping companies are so large that they can withstand the losses being accumulated in the bloody price war that some have suggested is a way to force smaller lines out of business.
That may be the big three’s strategy, but you have to wonder who will blink first. It was the headlong and mindless rush for market share that saw the lines pushed to the brink in 2009, and here we go again.
You also have to wonder whether the market would be better served by a diverse collection of carriers rather than being concentrated in the hands of a small number of lines. The bigger the carrier, the less the flexibility and the more impersonal the service.
But ultimately, cost and reliability are the two factors that matter to shippers. If a carrier doesn’t charge too much and the goods are delivered intact and on time, it doesn’t matter whether the shipping line has 10 ships or 1,000.
That reliability is what the Daily Maersk service that started officially on Monday is offering, but with so much space and low rates available there is plenty of choice available to shippers.