Container firms cut Pacific routes as fuel costs rise

PUBLISHED : Monday, 15 August, 2011, 12:00am
UPDATED : Monday, 15 August, 2011, 12:00am


Higher fuel costs, increased competition and lower revenues have taken their toll on niche container shipping companies operating transpacific services between Asia and North America.

The latest casualty is Matson Navigation, which will end its service between Hong Kong, southern China and the US west coast in the next few weeks, although a Yangtze River Delta-US service will continue.

The Containership Company, which launched transpacific services between eastern China and the US west coast in April last year, closed its container shipping operations a year later. Hong Kong-based TS Lines also recently culled one of its three transpacific routes. Despite coming under tough financial pressure Horizon Lines is the only one of these four niche carriers that has not cut its services across the Pacific.

Matson Navigation will end its Long Beach CLX2 express service linking Hong Kong, Yantian, Shanghai and Long Beach on the US west coast, with the last ship sailing from Shanghai on Sunday.

The final departure eastbound from Long Beach will be on September 3, just a year after the service was launched. Another Long Beach route - CLX1, connecting Xiamen, Ningbo, Shanghai with Hawaii, Guam and Long Beach, which started in 2006 - is unaffected.

Commenting on the decision to cut its south China services Matson Navigation spokesman Jeff Hull said: 'While Matson recognises that the Hong Kong/south China market is a vital and important region in China, the economics of the current environment made this difficult decision necessary.'

Matson is part of the Hawaii-based transport and property group Alexander & Baldwin, which said the CLX2 route lost US$17.7 million up to June 30. Alexander & Baldwin president Stanley Kuriyama, said: 'Persistently high fuel prices and overcapacity in the transpacific trade had a significant negative impact on the performance of our two China-Long Beach services [CLX1 and CLX2].'

This was despite a doubling of container volumes as a result of the launch of the CLX2 service. Hull said Matson Navigation transported 69,000 China-related containers in the first half of this year compared with 30,900 containers in the same period last year.

But the economics of the two services were different, so while the south China route was a direct service, the Yangtze River Delta route loads and unloads cargo in Guam and Hawaii, adding to revenue. Hull said there were no plans to add more mainland ports calls to the CLX1 Yangtze delta service.

On Hong Kong and south China, he added: 'We do not have any plans to continue to serve the region after the service has ended.'

Pointing to the tough operating conditions on transpacific routes, Horizon Lines, which has services between Shanghai and Ningbo to Los Angeles and Oakland, said container rates, net of fuel, fell 7.9 per cent to US$2,989 between April and June, down from US$3,246 per container a year ago.

'The reduction was due to the addition of China volume, with lower average and declining rates,' the company said. Horizon Lines' president Stephen Fraser said transpacific rates remained under pressure for most of the second quarter 'as some large international carriers continued to take aggressive rate actions amid capacity expansion in the trade lane'. He added: 'In addition, average fuel costs during the quarter were up 41 per cent from a year ago.'

The company was saddled earlier this year with a US$15 million fine to settle price fixing allegations.

Higher fuel costs and falling revenues were key to the decision by TS Lines to end its transpacific route from Ningbo and Shanghai to Long Beach last month. The service was intended to operate as a fast 'greyhound' connection, with ships speeding at 24 knots across the Pacific Ocean to offer a faster port-to-port transit time than other container lines. Instead the company focused on two slower transpacific services. One of these calls at Xiamen, Hong Kong, Yantian, Shanghai, Long Beach and Pusan, while the other, launched in May has calls at Qingdao, Ningbo, Shanghai, Long Beach and Oakland.