Rate hikes and capacity reductions fail to lift freight prices
December 5, 2011
Capacity reductions on major container lanes and rate hikes announced by Hanjin and CMA CGM failed to budge container freight rates last week.
Spot prices continued to slide on all major destinations reported on the Shanghai Containerised Freight Index.
However, if more container operators take vessels off overtonnaged lanes and the rate hikes stick, the slide could bottom-out soon, in spite of the slack winter season, brokers forecast.
Freight rates for China-Europe shipments fell again on Friday, down 2.2% on the previous week. Transpacific rates to the US west coast lost 0.6%.
According to a report in IFW’s sister publication, Lloyd’s List, the World Container Composite Index saw an even stiffer drop, falling 6.3%, or 81.16 points, to reach 1,217.35 points on Thursday.
The rate decline came shortly after Hanjin Shipping’s announcement that it intended to raise prices for shippers on routes connecting Asia with northern Europe and West Africa by $200 per teu and $400 per feu on 23 December.
And this came hot on the heels of a similar move by CMA CGM, and follows announcements by boxship owners that they would be reducing capacity on the transatlantic lanes (CKYH, OOCL) or quitting the container trade altogether (MISC).
However, according to ICAP Shipping, containership markets are overstretched on the supply side to the point where these developments failed to push up rates even slightly.
“The ex-Asia trade routes continue to be hampered by a severe oversupply of vessels as liners continue their obsession of market share over profitability,” the broker notes in its Global Shipping Analytics report.
According to ICAP, the number of 4,000teu and greater containerships available for long-term charters has reached its highest point in more than a year, with over 40 vessels available for six-month contracts.
With cargo demand set to enter a seasonal slowdown in the coming months, shipowners have a lot riding on the success of the freight rate hikes.
According to ICAP, this will largely depend on carriers’ discipline in enforcing their higher rates.
The shipbroker also noted that an increasing number of carriers were operating at a loss, which could mean rates would increase as more disheartened boxship owners reduced capacity or quit the trade.
ICAP said: “It will be unreasonable to think lines will continue to make losses and edge towards negative ebitda [earnings before interest, taxes, depreciation and amortisation] without taking corrective measures.”
Courtesy of IFW
