28372 members and growing – the largest networking group in the maritime industry!

LoginJoin

Thursday, December 14, 2017

Rates hit lowest levels ever, GRIs reach for record highs – go figure

Posted to Far East Maritime (by on October 10, 2013

Container lines are determined to make the November general rates increases stick on the dismal Asia-Europe trade.

Here's the story so far ... European demand for containerized imports from China vanished as the continent melted down into a steaming pile of sovereign debt.

Meanwhile, the ever-optimistic and market share protecting shipping lines continued to place orders for new ships. Not just any ships, but mega vessels capable of carrying well over 10,000 TEUs. That is the new trend, with economies of scale and fuel efficiency driving the move towards bigger ships and everyone has just got to have one. Or a whole fleet.

But as the capacity began flooding into service, demand remained weak and freight rates were placed under extreme and sustained pressure. Rates continued to fall and now the container shipping industry finds itself in a peculiar place.

Rates on Asia-Europe have dropped to record lows and are expected to hit US$800 per FEU by November. That’s right, 40ft boxes could cost just $800 each to ship from Shanghai to Rotterdam.

That’s only half of the weird part. With rates sitting at record lows, the container lines are imposing general rates increases on November 1 of record highs. Cosco $2,000 per FEU, CMA CGM $1,500 per FEU, Maersk $1,200 per FEU.

There was no peak season this year and business is flatter than a pass by an All Black centre, so how can the lines justify levying such huge rate hikes?

The problem is that at $800 per FEU, it makes no sense for a shipping line to carry that box anywhere. The carrier will make less money than a pro bono hooker. And if the lines lose money, like they will this year, service levels fall, sailings are blanked, cargo is rolled and everyone is unhappy.

If you had to ask any forwarder, he would tell you that volatile rate levels are no good for anyone. Record highs mean shipping space is limited and record lows mean service levels are compromised and it will be more difficult to guarantee delivery times to customers.

So the other night, over a couple of beers and steaks char grilled expertly in the finest South African tradition, we asked a forwarder about the low rate environment. He was quick to dismiss accusations from liner executives that it is customers who are forcing rates down into the bargain basement. Instead, he laid the blame firmly at the feet of the carriers.

“They are the ones accepting chronically low rates,” he said, ripping into a succulent 16oz ribeye (seriously, the ribeye has got to be the greatest cut ever).

Anyway, the forwarder said liner customers do not give a rats backside which shipping company carries their cargo as long as it gets there in one piece and in the time promised.

“Obviously forwarders and shippers will always try to get the lowest rate possible, that’s how we operate. But what I want to know is who is offering to ship a box for $800? If a shipping line sales agent is offering customers a price of $800 per FEU, he should be made an ex sales agent as soon as possible,” he said.

And this seems to be the real point. Yes, there is a giant excess of ship capacity. Yes there is weak demand for China exports. But even with profitability under severe threat, some carriers cannot help themselves clinging desperately to market share by refusing to lay up capacity and shipping containers at ridiculous prices.

Maersk even said this week it would “aggressively” defend its market share. The Danish carrier may resist the temptation to fill ships at loss-making rates, but that sort of comment could send the opposite message to the market and make it even more difficult for the November 1 GRIs to stick.

 

Tags: marine insurance shipping Europe singapore Firms Asia

Comments

You must be logged in to post comments.