Hard to beat the gloom as lines ponder second half
Carriers attempt to impose rates rises and surcharges to compensate for falling profitability and an uncertain finish to the year.
“We don’t see the first half being any better than the first half.” With the way the global markets are reacting to the ratings downgrade of the US, that statement by Orient Overseas (International) Ltd CFO Ken Cambie is almost a positive one.
Cambie was releasing the interim results of OOIL, parent of Hong Kong-based carrier Orient Overseas Container Line, on Monday.
The first half was disappointing, dropping by 38 percent if the one-off gain from the sale of the group’s mainland property unit was removed.
But with the flood of newbuildings coming online and the global instability hammering stocks and savings and expected to rein consumer demand, if a container line was offered a 38 percent fall in net profit in the second half, we would suggest they jump at it.
That would never happen, because in the parallel universe occupied by the carriers this is the time to raise freight rates. For instance, Maersk has just announced a general rate increase of US$250 per TEU and US$500 per FEU for the westbound Asia-North Europe trade
And not to be outdone, the Transpacific Stabilisation Agreement (TSA) decided that August 15 was a good day for the delayed peak season surcharge to be implemented.
Not long after the surcharge kicks in, US outfit Matson will be withdrawing one of its transpacific services, blaming falling rates, too much capacity and fuel prices. PR News Service says this will remove 3,600 TEU of weekly capacity, all of it on non-US flagged ships.
The outlook on the transpacific for the rest of the year is gloomy, to say the least. Hong Kong’s army of manufacturers on the mainland is expecting a poor Christmas as households cut back on spending. Toy makers say orders are already “cautious”.
Reports of importers delaying payments suggests cash flow problems that can only grow as economic conditions deteriorate in the US and Europe.
Robust Intra-Asia trade cannot replace the falling demand from the major markets. The economies of Asia are growing but are still far too small to compensate for a slowdown in orders from the US and Europe. And anyway, a large portion of the Intra-Asia trade is part of the supply chain that carries goods to market.
The US National Retail Association believes holiday sales will be good based on import figures, but if not, retailers will be stuck with excessive inventory. The last time that happened was in 2009 and 12 percent of the world’s fleet was laid up when manufacturing orders vanished.
It will be like déjà vu all over again.