Rates riding a new record low on Asia-Europe
This year is going to end badly for the carriers unless something can be done to raise freight rates, a big ask in the current climate.
Rates on the Asia-Europe trade have fallen to an abysmal level. We are hearing of forwarders securing freight rates of as low as US$900 per container, which is well below any kind of sustainable level as far as shipping lines are concerned.
It is small wonder that the carriers are announcing hefty general rates increases in November, with $950 per TEU seeming to be the favourite figure. Shipping lines simply have to get the rates up, because such low levels make carrying cargo a complete waste of time and, more importantly, money.
Maersk’s South China head David Skov told us after a ceremony to welcome the Maersk McKinney-Moller to Hong Kong for its maiden call that the GRIs simply “have to stick”.
He said it was incredible how far and how fast the rates fell. In July and August the lines were reporting reasonable rates – or at least at levels that met everyone’s low expectations – but over the past five weeks they have fallen like a lead-lined anvil.
Skov said Maersk would stand firm against any pressure from customers for the line to lower rates. “We have our costs and customers must understand that we need decent rates. They just have to go up,” he said.
But blaming customers for the fall in rates is unfair, a forwarder told us last night. The lines are accepting the low rates to fill ships, he reckons. “Maybe some of the big shippers or big forwarders have the bargaining power to negotiate rates at ridiculously low levels, but certainly 5,000 small forwarders will not have that power. The carriers are trying to maintain market share on Asia-Europe and will accept whatever rate they can if it means filling a ship.”
With demand down and so much capacity available and more coming online every month, taking the market share approach is robbing lines of profitability.
The last quarter of the year has always been the slack season and there is no reason to expect this year to be any different, so carriers in the red now will stay there. There will be no late peak season bailout, that’s for sure.
Only Maersk and CMA CGM managed to make money in the first half, but if rates remain at such historically low levels, the year is going to end badly for everyone.