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Home  Latest News Container Lines 'Tough' Talks May Fail to Lift Fees, End Losses |
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| Latest News - HELLENIC SHIPPING NEWS WORLDWIDE |
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Container Lines 'Tough' Talks May Fail to Lift Fees, End Losses |
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Sunday, 16 August 2009 |
 Shipping lines operating half the world’s container vessels plan to raise Asia-U.S. rates, ending a price war that contributed to industrywide losses. Falling demand and a flood of new vessels may stop them.
A group of 14 lines, including CMA CMG SA, Evergreen Marine Corp. and
Neptune Orient Lines Ltd.’s APL Ltd., agreed to raise rates by $500 per
40-foot container starting this week. The figure was a “voluntary
guideline,” the Transpacific Stabilization Agreement, or TSA, said last
month. The lines, now in the busiest period of the year, may have to
settle for less as slumping traffic and empty ships let customers seek
discounts.
“Cargo volumes aren’t big enough” to support the $500 rise, said Bruce
Tseng, a spokesman for Taiwan-based Yang Ming Marine Transport, a TSA
member.
The group wants to renegotiate contracts signed in the past few months
to raise rates after the 10 largest listed container- shipping
companies all posted losses. A similar attempt in April failed as lines
competed for volumes to avoid costly ship lay- ups amid a roughly 20
percent drop in Asia-U.S. volumes. Even a $500 increase would leave
rates at unprofitable levels and 30 percent lower than a year earlier,
according to CMA CGM.
“A rise in transpacific rates is very difficult,” said Johnson Leung, a
Hong Kong-based analyst at Tufton Oceanic Ltd., the world’s largest
shipping hedge-fund group. There should be some increase in the peak
season, “the question is how long it will last,” he said.
Spot rates for shipping a container to Los Angeles from Hong Kong fell below $900 last month, according to Lloyd’s List.
‘Back to School’
Container lines traditionally raise rates around the third quarter as
shops stock up for the “back to school” and holiday shopping seasons.
This year, cargo-box trade is tumbling as retailers pare orders amid
weak demand. U.S. consumer spending fell at a 1.2 percent pace in the
second quarter. Inbound container volumes at the Port of Los Angeles,
the busiest in the U.S., fell 17 percent from a year earlier in June.
“Demand is very low,” said Ken Cambie, chief financial officer of
Orient Overseas (International) Ltd., Hong Kong’s biggest container
line. “We haven’t seen any restocking from the retailers in the U.S.
and Europe.”
The company reported its first loss in a decade last week. Its
transpacific rates averaged 14 percent lower in the first half than a
year earlier.
‘Pretty Tough’
“Discussions to move rates back up again are pretty tough,” said Ron
Widdows, chief executive officer of Neptune Orient, the owner of
Southeast Asia’s biggest container line.
Nippon Yusen K.K., Japan’s largest shipping line by sales, isn’t sure
how many customers will accept the higher rates, said Suguru Uchida, a
spokesman. Mediterranean Shipping, the world’s second-largest container
line, Evergreen Marine Corp., Asia’s biggest, and Hapag Lloyd AG,
Germany’s biggest, declined to comment.
Neptune Orient climbed 1.2 percent to S$1.71 in Singapore trading
today. The stock has risen 69 percent this year. Nippon Yusen closed
little changed at 412 yen in Tokyo. It’s down 24 percent this year.
Evergreen Marine climbed 5.2 percent to NT$21.25 in Taipei, extending
gains for the year to 38 percent.
Shipping lines also face more competition as shipbuilders work through
container-vessel orders with a combined capacity equal to 38 percent of
the existing global fleet, according to data compiled by Bloomberg. The
ships were ordered during a trade boom that ended last year. The World
Bank has forecast a 6.1 percent decline in global trade this year.
Mothballed Ships
New vessels are entering service even as a shortage of cargo forces
lines to mothball existing ships in Singapore, Hong Kong and other
ports across Asia. The capacity of the laid-up fleet will likely expand
66 percent by around year’s end to 2 million 20-foot containers,
according to AXS Alphaliner, an industry data company.
“The container-shipping industry will only see a recovery in profits
after the overcapacity issue is resolved,” said Jee Heon Seok, a
Seoul-based NH Investment & Securities Co. analyst. “Without
drastic measures such as scrapping, it’s hard to see rates showing a
meaningful rebound until the first half of next year.”
Shipping lines are trying to drive up rates by withdrawing capacity.
A.P. Moeller Maersk A/S, CMA CGM and Mediterranean Shipping last week
agreed to combine two Asia-U.S. services into one.
Below Profitability
A $500 increase would leave rates “below minimum profitability” because
of the need to haul empty containers back to Asia from the U.S., said
Jean-Philippe Thenoz, head of North American lines at CMA CGM, the
world’s third-biggest container carrier.
He added that the increase will stick as customers understand that it’s
an “necessity” and because a U.S. economic rebound will trigger an
increase in demand.
“There are already signs of a recovery in U.S. consumption,” he said. “We’re very optimistic for the end of 2009 and for 2010.”
Jo Jo Hsu, manager at the Hong Kong office of Yiu Fung Forwarder, which
arranges cargo shipments, also said that shipping lines have raised
rates and that the increases may hold until the end of September.
Peak-season surcharges and fuel levies, lower than last year, also are
being added, she said.
Higher rates likely will only remain in place if the U.S. economy
recovers and companies in the world’s largest economy become confident
enough to rebuild inventories.
Big customers at present “don’t have any idea what the demands for
their products are,” said Neptune Orient’s Widdows. Restocking “may
happen, but that’s not happened yet.”
Source: Bloomberg
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