Rates war back in the picture on Asia-Europe
Carriers plan slack season GRIs but accelerating rate erosion is the real cause of their problems.
“A general rate increase in November? Skou must have lost his mind,” was the retort of Hong Kong Shippers Council executive director Sunny Ho to news that the Maersk boss planned to hike box rates from November 1.
It was an understandable reaction from the feisty Ho, who pointed out that it was the slowest of slow seasons. Maersk Line chief executive Soren Skou said in Hong Kong late last week the carrier would introduce capacity cuts from China next month and “significant” cuts later this year. Yet even as it reduces capacity, the Danish line will increase freight rates in an attempt to improve profitability as it tries to regroup after a dismal peak season.
Customers have found through bitter experience that when shipping lines keep a tight rein on capacity, even a slight spike in demand can see cargo being rolled.
There was no indication of the increase Maersk will be asking for, but OOCL will hoist rates by US$250 a TEU from September 10 on shipments from Asia, South Asia and the Middle East to North Europe, the Mediterranean and the Black Sea. Cosco will increase rates by $400 per TEU from September 8 on the same routes.
Skou is convinced that the November GRIs will stick, unlike many of the rates increases that were periodically introduced this year. Shippers are battling with their own demand issues and are not in the mood to pay more for what they see as falling service levels, longer voyages and dwindling slots as vessels are laid up.
SeaIntel looked at freight rates from Asia to Europe in its Sunday spotlight and found that the rate erosion is far worse than during the rate war of 2011.
The market intelligence provider said carrier discipline was only in evidence when major rate increases were announced. When it came to periods outside the GRIs, the fall of rates was accelerating.
SeaIntel reckons the decline in rates on Asia-Europe is unprecedented in the history of the spot rate index. Rates are falling from Asia to North Europe by US$100 per TEU a week.
Only through a huge withdrawal of capacity from service will the container lines be able to avoid reigniting the rate war, SeaIntel concludes.
There are no positives in a rate war. It is a race to the bottom and forces lines into capacity restricting cutthroat mode. Shippers end up fighting for less space, cargo is rolled and delivered late, service levels plummet and no one wins.
Then the carriers start trying to boost profitability and the boom-bust cycle begins all over again.