Wednesday, June 6, 2012

Top Story

Are box carriers getting in their own way on rate increases?

Freight rate under-cutting and the return of some of the idled vessel capacity to the global fleet in the financially-struggling global container-shipping sector could reportedly be re-surfacing as the heart of the peak shipping season looms.

According to Paris-based shipping consultancy Alphaliner, there are "increasing signs of rate undercutting as rates have risen above break-even for most carriers."

However, if those peak season rates are not successfully increased it "could have significant negative ramifications on the carriers' attempt to return to profits this year," Alphaliner said.

Since May 4, the Shanghai Containerized Freight Index has reportedly slid 7.6 percent after a 58-percent rise for the first four months of 2012.

"Somebody of the 15 lines contributing to the index must have undercut the jointly established higher freight rates," said Kai Miller of London-based shipbroker ICAP Shipping to Bloomberg Businessweek. "More general rate increases were announced for the summertime, but that is now a big question mark," Miller said.

"The implementation of the peak season charges that most lines had planned for early June seem to have moved to mid- June," said Lars Jensen, director of the Asia-Europe trade for Maersk Line in Bloomberg's report.

Jensen said Maersk has pushed the introduction of its peak season surcharge to June 15.

"It all depends on supply and demand, but we are reasonably optimistic as far as the summer is concerned" with vessel utilization percentages "in the mid-90s" for Asia-Europe, he said.

The current average rate in the Asia-Europe tradelane is reportedly about $1,700 per-TEU, well above the approximate $1,000 per-TEU that is supposedly the break-even point for container-shipping lines.

However, another 400,000 TEUs of vessel capacity hit the seas in the first quarter, with 40 percent of formerly idled ships back in service, as that figure is projected to grow to 1.2 million TEUs by year's end, according to the global shipping association BIMCO.

"When rates improve, container lines are quick to add capacity and that creates a ceiling as to how much rates can recover," said Peter Sand, an analyst at BIMCO.

For the full Bloomberg Businessweek story: www.businessweek.com

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