Container Carriers to have a Tough Time Increasing Freight Rates
Over the last few weeks, freight rate declines have slowed compared with the trend for the majority of 2013, but broker Freight Investor Services expects this development to be short lived.
Richard Ward, an analyst at box derivatives broker FIS, said “carriers will be concerned that post Chinese New Year rates will once again decline more rapidly”.
“With fundamentals likely to be weaker than in the run-up to New Year holiday, any rate increases planned will be difficult to implement or maintain”.
The latest figures from the Shanghai containerised Freight Index show that this week all-in spot rates on services from Shanghai to northern Europe declined by USD 18 to USD 1,580 per TEU compared with the week before.
Prices on services from Shanghai to the Mediterranean slipped USD 25 to USD 1,609 per TEU during the same period.
Rates on services from Shanghai to the US West Coast declined by USD 2 compared with last week to USD 2,108 per FEU and to the East Coast prices slipped USD 1 to USD 3,426 per FEU.
Mr. Ward said the slower freight rate declines were caused by an increase in demand in the run-up to the Chinese New Year.
He said that the forward freight agreement curve gave carriers an opportunity to secure spot income for the remainder of the year on the Asia to Europe trade at USD 1,230 per TEU.
Near-shoring or Re-shoring can it become a Reality
As reported in the Container Shipping Manager, with production costs rising in China through higher wages and a stronger currency, which affects exports, serious discussions are taking place to manufacture goods closer to home markets in developed economies.
Recently British Prime Minister spoke to the World Economic forum in Davos about the “practice of offshoring where companies move production facilities to low cost countries” and how this has been changing with production coming back.
These outsourced jobs went mostly to China, which began the trend in the 1980s and 1990s. In the US, politicians also note a return of manufacturing to home shores, boosting employment in previously depressed regions.
Seeing the same trend, the British Prime Minister said there is “now an opportunity for some of those jobs to come back” to Britain.
He cited as evidence “a recent survey of small and medium sized businesses found that more than one in 10 has brought back to Britain some production in the past year”.
The British Prime Minister named a number of manufacturers, from the computer company Raspberry Pi to the fan engineer Vent Axia, who were repatriating production operations out of china and into Britain.
The British Prime Minister also cited “rising costs in the emerging markets, a natural consequence of these economies developing and their people becoming wealthier. Senior salaries in China now matches or exceeds that in America and Europe while rising oil prices and complex supply chains are increasing transport costs too”.
Not so, said the Ti Commentary: “This is questionable. With super post-panamax ships conserving fuel and both sea and air freight rates so low results in the transport sector being economic and therefore, it is hard to see much evidence for the notion that transport costs are driving a return to previous production locations”.
Diminishing Container Carrier Reliability
Container shipping reliability fell every quarter of 2013 with 4th quarter being the worst in two years, posting its’ lowest on-time rate of 64%, 11.4 points down on 2012, says Drewry’s Carrier Performance Insight.
The short term outlook is not hopeful and services are likely to become less reliable into 2014 as operators cut costs creating a knock-on effect to service standards, said the London Research House.
A focus on reliability seems to have been lost in current cost-cutting environment and shippers are now paying more for poorer service, said Drewry Research Manager, Simon Heaney.
“Shippers know that lines are saving money, so they will be unwilling to accept further rate increases. This could provide an opportunity for more reliable carriers to secure better rates,” he said.
Danish giant Maersk Line held its’ status as the most reliable carrier achieving an on-time score on all trades of 80% in the 4th quarter, improving by 0.8 points compared to most of its’ rivals.
Evergreen boosted its’ position from 11th to rank 2nd at a 74% on-time result, a 3 point improvement. Yang Ming ranked 3rd despite a 4 point decline it held 74% on-time.
Liners struggling were MSC and CSAV at 48% and 51% on-time reliability.
Ports under Pressure
Ports on the Intra-Asia trade route face pressure to increase their maximum port handling capacity from 2015, when China-Asian trade is expected to skyrocket as a full trade agreement comes into effect.
Trade between China and Asian nations – Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar and Cambodia, should reach USD 500 billion by 2015, a jump of 25% from USD 400 billion in 2012, according to China’s Ministry of Commerce.
Port calls between China and other countries in the intra-Asia trade spiked after the free trade agreement was signed in 2010, with an annual increase of 30%. Growth has continued with, 2012 figures showing a 20% increase in port calls year-on-year.
In that period, port calls increased between the Asian 5 – Indonesia, Malaysia, the Philippines, Singapore and Thailand and other countries in the intra-Asia trade route by 4% until 2012 when they increased 8%.
Export volume growth is forecast by the International Monetary Fund to double for china from 5.7% last year to 11.5% in 2018 and to triple for the Asian 5 from 2.8% last year to 8.3% in 2018.
With this forecast volume growth, pressure will be placed on ports to handle larger vessels and on liner operators to upgrade container vessels in this trade.
The maximum carrying capacity of the top Chinese and Asian ports for the intra-Asia trade to date is 5,100 TEU.
If larger vessels do not cascade onto this trade, the frequency of services will need to increase. A higher frequency of vessels calling will create congestion and thus longer wait times for shippers.
The maximum carrying capacity for many smaller ports in this region is low, according to Lloyd’s List Intelligence data.
Improper Container Packing costing Industry Millions
As revealed in the Lloyd’s Loading List, as many as two thirds of accidents that involve the loss of, or damage to, containerised cargo are thought to be caused by poor or improper packing and securing.
Such a finding is echoed by the ocean carriers’ Cargo Incident Notification System (CINS), where a third of incidents investigated were found to have this cause. The loss to the industry is substantial, resulting in direct expense, operational disruption and management distraction, not to mention litigation or insurance costs.
The TT Club’s claims history is strewn with incidents that indicate inadequate awareness of the dynamic forces that can be encountered during intermodal transport, in addition to lack of consideration of the consequences of inappropriate load distribution within the CTU. However, since the modern container typically passes through so many handling processes during its’ journey, it can be difficult to pinpoint liability for an incident, even where poor packing is suspected.
“It is no surprise that the correct packing of containers is high on the agenda for industry bodies, regulators and insurers, as the consequences of unsafe and badly secured cargo are serious”.
“It is important to take account not only of financial losses but also in too many cases of serious bodily injury to operators and even death”, said TT Club’s risk Management Director, Peregrine Storrs-Fox.
DP World’s Container Volumes Decline
In 2013, terminals worldwide in which DP World is involved handled a consolidated (i.e. according to equity share) 19.5 million TEU, a reduction of 5% year-on-year. Handlings were lower in all areas, but volumes in the Far East/Indian Sub Continent sector declined by the highest percentage. Volumes handled in the United Arab Emirates, including home port Jebel Ali (Dubai), at 13.6 million TEU, were 2.8% higher than in 2012.
US Trades Improve
In 2013, US imports grew by 3.7% year-on-year to 18.2 million TEU, to their highest point since 2007, according to Zepol. With 2.5 million TEU (+7%), MSC was the largest carrier, followed by Maersk Line (-3%) and Evergreen (+6%).
The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP)