TSA members plan to raise Asia-US rates by US$500
Shipping lines operating half the world's container vessels plan to raise Asia-US 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, Evergreen Marine and Neptune Orient Lines' APL, agreed to raise rates by US$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 US$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 per cent drop in Asia-US volumes. Even a US$500 increase would leave rates at unprofitable levels and 30 per cent 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, a 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 US$900 last month, according to Lloyd's List.
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. US consumer spending fell at a 1.2 per cent pace in the second quarter.
Inbound container volumes at the Port of Los Angeles, the busiest in the US, fell 17 per cent from a year earlier in June.
'Demand is very low,' said Ken Cambie, chief financial officer of Orient Overseas (International), Hong Kong's biggest container line. 'We haven't seen any restocking from the retailers in the US and Europe.'
The company reported its first loss in a decade last week. Its transpacific rates averaged 14 per cent lower in the first half than a year earlier.
'Discussions to move rates back up again are pretty tough,' said Ron Widdows, chief executive officer of Neptune Orient Lines, the owner of South-east Asia's biggest container line.
Nippon Yusen, 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.
Shipping lines also face more competition as shipbuilders work through container-vessel orders with a combined capacity equal to 38 per cent of the existing global fleet, according to data from Bloomberg. The ships were ordered during a trade boom that ended last year. But the World Bank has forecast a 6.1 per cent decline in global trade this year.
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 per cent by around year's end to two 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, an analyst at Seoul-based NH Investment & Securities. '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. AP Moeller Maersk, CMA CGM and Mediterranean Shipping last week agreed to combine two Asia-US services into one.
A US$500 increase would leave rates 'below minimum profitability' because of the need to haul empty containers back to Asia from the US, 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 a 'necessity' and because a US economic rebound will trigger an increase in demand. 'There are already signs of a recovery in US consumption,' he said. 'We're very optimistic for the end of 2009 and for 2010.'
A group of 14 lines, including CMA CMG, Evergreen Marine and Neptune Orient Lines' APL, agreed to raise rates by US$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 US$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 per cent drop in Asia-US volumes. Even a US$500 increase would leave rates at unprofitable levels and 30 per cent 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, a 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 US$900 last month, according to Lloyd's List.
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. US consumer spending fell at a 1.2 per cent pace in the second quarter.
Inbound container volumes at the Port of Los Angeles, the busiest in the US, fell 17 per cent from a year earlier in June.
'Demand is very low,' said Ken Cambie, chief financial officer of Orient Overseas (International), Hong Kong's biggest container line. 'We haven't seen any restocking from the retailers in the US and Europe.'
The company reported its first loss in a decade last week. Its transpacific rates averaged 14 per cent lower in the first half than a year earlier.
'Discussions to move rates back up again are pretty tough,' said Ron Widdows, chief executive officer of Neptune Orient Lines, the owner of South-east Asia's biggest container line.
Nippon Yusen, 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.
Shipping lines also face more competition as shipbuilders work through container-vessel orders with a combined capacity equal to 38 per cent of the existing global fleet, according to data from Bloomberg. The ships were ordered during a trade boom that ended last year. But the World Bank has forecast a 6.1 per cent decline in global trade this year.
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 per cent by around year's end to two 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, an analyst at Seoul-based NH Investment & Securities. '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. AP Moeller Maersk, CMA CGM and Mediterranean Shipping last week agreed to combine two Asia-US services into one.
A US$500 increase would leave rates 'below minimum profitability' because of the need to haul empty containers back to Asia from the US, 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 a 'necessity' and because a US economic rebound will trigger an increase in demand. 'There are already signs of a recovery in US consumption,' he said. 'We're very optimistic for the end of 2009 and for 2010.'
