Tuesday, June 16, 2009
Analysts doubt freight hikes can be sustained
Tuesday, 16 June 2009
Analysts are sceptical about the sustainability of soon-to-be raised freight rates announced by at least three large container shippers recently. Earlier last week, Maersk Line, the world's largest container shipping line , announced that it would raise rates from the Far East to the Mediterranean and Northern Europe by US$300 a container beginning July 1.
It also said that a peak surcharge of US$150 would be levied between Aug 1 and Oct 31. Previously, both Neptune Orient Lines and CMA-CGM had announced similar increases.
The moves reflect a certain desperation among shippers battered by low freight rates since the onset of the global financial crisis which caused world trade to diminish drastically.
During the 1980s, container freight rates were around US$4,000 a box. Then they hovered around US$2,500 a box before plummeting to between US$600-US$1,500.
But since the onset of the global crisis, rates have all but plummeted to around US$300 a box. The result has been haemorrhaging shippers: Maersk, for example, lost US$350 million in its first quarter.
The renewed optimism currently reflects the uptick in world trade driven primarily by China's bubbling economy. It could also be fuelled by expectations of seasonally strong export demand in the third quarter.
Even so, analysts are casting a dubious eye on the hikes. 'We remain sceptical of such rate hikes being sustained,' said the Arab-Malaysian Banking group in a recent research report.
A previous hike in April didn't work, the report pointed out. Meanwhile, over the next two years, container ship supply - from previous orders in more optimistic times - is expected to rise 27 per cent. Moreover, global fleets are relatively young which leaves little room for 'scrapping' as a means to reduce supply.
On top of that, the China story isn't all that it's cracked out to be, at least to container shipping. AMMB pointed out that its growth would only boost basic materials demand which would only help dry-bulk carriers, not containers which need finished exports to rise for it to benefit.
Source: Business Times Singapore
