Container lines shift more cargo for less revenue
Container-shipping lines lifted 14.7 per cent more cargo last year than in 1996 but earned 1.2 per cent less revenue, a report by British-based Drewry Shipping Consultants says.
'All the additional traffic was essentially carried not just freight-free, but actually with a subsidy from lines,' its Container Market Outlook report said.
Estimated gross income of global carriers was US$77.9 billion in 1996. They carried 49 million teu (20 ft equivalent units).
In 1997, global carriers' estimated gross income was US$77.6 billion. They handled 53.5 million teu.
Last year, carriers' estimated gross income was US$77 billion for handling 56.2 million teu.
Singapore's Neptune Orient Lines recently reported a loss of S$438 million (about HK$2 billion) from operations, even though sales topped S$6.5 billion, as it grappled with higher fuel prices and rising operating costs. It said the Asian crisis made last year particularly bad.
On the main east-west trades, aggregate carrier losses were almost US$2.4 billion - a negative margin of more than 8 per cent, Drewry said.
This year, shipping lines - perhaps driven by desperation - had addressed the revenue gap more aggressively than before, it said.
'Massive rises on Asian export trades have been coupled with an increasing array of surcharges and tentative efforts to restore Asian import rates and to stem losses on the trans-Atlantic,' it said.
The net turnaround for carriers this year against last year's loss had showed that trans-Pacific trade improved by US$2.2 billion and Europe-Asia by US$600 million while trans-Atlantic aggregate carrier profitability worsened by more than US$500 million.
Despite under-performance by carriers and the exit of many well-known lines from trades, China Shipping Group's entry into Asian east-west trades was being watched closely.
Another interesting development was the acquisition of Sea-Land and Safmarine by Danish carrier Maersk Line for more than US$1 billion.
Consolidation in the industry seemed to be the main route for the industry to pursue, the report said.
However, if carriers were looking for higher rates to lead them to long-term profitability, the evidence of the past 20 years suggested they would be disappointed.
'Current successes in raising average rates on certain legs of certain trades are unlikely to be sustainable, since there are many powerful influences working to keep rates low,' Drewry said.
Even between last year and this, global average rates largely had continued to fall as favourable market opportunities arising from severe trade imbalances were matched by weaknesses on return legs.
Any long-term strategy that largely or exclusively depended on space shortages to raise rates was doomed to fail, it said.
Carriers needed to use new possibilities provided by deregulation to break out of the market-driven cycle to earn profits.
The report gave six reasons why the low-rate era would stay: The erosion of antitrust exemptions previously enjoyed by carriers; The reduction of unit costs achieved by shipping lines through productivity and efficiency gains; The globalisation of the world economy; The glut in shipping space; The promotion of marginal pricing by container-shipping lines; And global pressure for higher quality at a lower price.
