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Saturday, October 21, 2017

Shippers turn noses up at last year’s GRIs

Posted to Far East Maritime (by on January 17, 2013

Hiking freight rates in a weak market is impossible, as the lines found out last year on the Asia-Europe and Med trade.

Seven times container lines tried to raise freight rates since March last year, only to see rates fall from US$2,700 to $2,400 by the time January rolled around.

This, Drewry says in its Container Forecaster report, is because of market weakness, low cargo volumes and a non-existent peak season.

The challenge now is how to raise the rates, and it is going to be a very big ask in the current environment. This year there are a good 40 ships greater than 10,000 TEUs to be delivered, and much of that capacity can only go on two trade lanes – Asia-Europe and Asia-Med.

On Loop 5 of the G6 Asia-Europe service, weekly capacity will have almost doubled by June as 13,000 TEU ships float into service, according to PR News Service.

Capacity on the other services in the trade is not rising at the same rate yet, but the newbuildings have to go somewhere. Deploying them without destroying freight rates is going to tax the inventiveness of liner executives this year and probably the next.

Sailing straight from building yard to lay-up is not very appealing for a US$100 million hole in the water, most of which is probably owned by a bank or leasing company.

But could the major container lines be playing a high stakes game of poker, continually raising the pot until the other players have to fold? Consolidation is needed in the container shipping line, and this could be a way to force it – take rates so low that only the biggest lines can afford the huge losses.

Okay maybe not, but it is hard to see consolidation taking place any other way. Acquisitions are rare and carriers are seldom allowed to go under, bailed out by consortiums or their state owners.

For the finest examples, look no further than China. Of the 14 mainland listed shipping companies, nine reported losses in the first three quarters, with Cosco leading the way again after a dismal 2011. With the state as the major shareholder, the lines are protected, but one can’t help wondering how long Beijing will tolerate billion dollar losses year after bleeding year.

For most carriers, 2013 has started off better than expected. Load factors on Asia to North Europe and the Med are higher in this pre-Chinese New Year period, and many of the lines plan to levy peak season surcharges from next week.

Drewry remained cautious: “The acid test will be how long any carrier rate successes last beyond the middle of February when volumes traditionally weaken.”

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