Ship owners face losses as freight rates keeps dipping

Dipping freight rates, after more than two years of skyrocketing costs in a pandemic-disrupted supply chain, apparently sunk beyond the comfort threshold where shipping operators are now counting losses.

As sea freight transport continues to decline globally due to the Russia-Ukraine war shocks, freight charges continue to decrease. In the second half of 2022, cargo transportation in containers, bulk carriers and lighter ships has dwindled by 20% to 50%, say industry insiders.

With reduced cargo volume, many ships are transporting less than their carrying capacity while some ships are forced to stay anchored with no shipment deals. As a result, the owners find themselves counting losses in operating their vessels.

Falling freight rates have also dealt a blow to the recently launched direct shipping services from Chattogram to destinations in Europe. Of the four routes, shipping on the Chattogram-UK-Netherlands route, which began in May, 2022, could only continue until October that year.

Captain Md Didarul Alam, general manager of KSRM Group, which operates 23 Bangladesh-flagged vessels, said it will be difficult to continue business, if the situation persists.

Saif Maritime Limited CEO Mohammed Abdullah Jahir expressed similar concerns

told TBS that the shipping companies are continuously reducing freight rates due to the reduction in global cargo traffic due to the Russia-Ukraine war. If this situation continues, companies will have no choice but to stop ship operations.

Shipping insiders said they are trying to stay in business by lowering freight rates amid declining cargo volumes.

Freight charges on Europe-America routes through transhipment ports have dropped dramatically – rate per container on the Chattogram-Europe routes has come down to $1,500-2,000 from $14,000-16,000 in 2020. On the US routes the charge dropped from $16,000 to $3,000.

Shipping stakeholders say, just when the freight charges started to come down from an all-time-high with the supply chain normalising, the Russia-Ukraine war caused the global trade to slow down. The disruption prompted measures including certain import restrictions such as the bar on importing luxury items. This led to freight charges on Europe and US-bound ships to decrease by 60-70% compared to the pandemic-time rates.

At the end of the day, the shipping companies are now struggling to generate the operation costs. Ship-owners in the Asian region in particular are counting losses.

Despite the freight rates cooling down to the pre-pandemic levels, increased operating costs, further swelled by the fuel-oil price hike kept the shipping companies from hitting profit.
Meghna Group, which operates 19 bulk carriers (12 in Asia, 7 in North America) on international sea routes, is now charging a reduced daily fare of $4,000-5,000 per ship with a carrying capacity of 50,000-60,000 tonnes from $20,000 two years ago in the Asia Region.

Likewise, daily fare per ship on South American waters dipped from $35,000-$45,000 to $20,000-$30,000.

Md Abu Taher, chief engineer of Mercantile Shipping, a Meghna Group subsidiary, told TBS that the losses in the American region are relatively low while the losses in Asia are increasing.

“Freight charges are likely to increase after the Chinese New Year holiday ends in the last week of January,” he said.

Direct shipping to Europe stumbles
The Chittagong Port Authority launched direct shipping services on seven of the 15-20 major global routes from February 2022 to September 2022 with the help of local and foreign shipping companies.

The direct shipping operations, which cut shipment costs and lead times, was not immune to the falling freight rates and cargo volume as London-based freight forwarder Allseas Global Logistics Company in October moved to stop operating their ships on the Chattogram-Liverpool-Rotterdam route.

“Import cargo volume decreased by about 25%. Although the export cargo volume remained stable, we discontinued the route due to lower freight charges,” said Captain Syed Sohail Hasnat, CEO of Phoenix Shipping Limited, the local representative of Allseas Global Logistics.

However, shipping on the Chattogram-Italy- Türkiye and Chattogram-Netherlands-Spain routes are currently operational.

Lighter ship operation dips as well
Lower cargo volume in turn led to lighter ship operation to decrease by 50 to 70% over the second half of the last year. The average number of mother vessels which used to unload goods daily at the outer anchorage of the Chattogram port has decreased from 80-100 to 20-25 in recent days.

“The ship owners are struggling to pay the salaries and other expenses of the sailors. With reduced earnings the payment of bank loan instalments has also become irregular,” Nurul Haque, general secretary of Bangladesh Cargo Vessel Owners Association told TBS.

Some 5,000 lighter vessels operate across the country and 12 sailors on average work in each ship. Half of these vessels transport goods from the Chattogram port to 34 sea routes of the country.
Source: The Business Standard