• Sat
  • Apr 19, 2014
  • Updated: 3:18am

Troubled shipping lines raise rates on key routes

PUBLISHED : Saturday, 04 February, 2012, 12:00am
UPDATED : Saturday, 04 February, 2012, 12:00am

Exporters and importers face higher shipping costs as loss-making and financially troubled shipping lines raise freight rates on key trade routes to Europe, the Mediterranean and South Asia in the next few months.

The increases will more than double freight rates on some routes compared with December, as global container shipping lines contend with estimated collective losses last year of US$5.2 billion.

Sunny Ho Lap-kee, executive director of the Hong Kong Shippers' Council, criticised the rate increases, saying consumer demand remained soft for Hong Kong and mainland exporters in western economies. Ho, whose group represents 47 trade associations, manufacturers and other trade companies, said: 'Many shippers are facing a very difficult time. We will be facing a very quiet period.'

But prices of shares in container lines have climbed in the expectation that revenues and profitability will rise on the back of higher freight rates.

Shares in China Shipping Container Lines surged 8.5 per cent yesterday, continuing an upward trend that started earlier this week, after it said it planned to raise freight rates. Orient Overseas (International), parent of the Tung family-controlled container carrier, saw its stock surge by HK$6 this week after OOCL announced rate increases on Tuesday. Last week German container line Hapag-Lloyd was the first carrier to announce a general rate increase of US$750 per teu (20-foot equivalent unit) from March 1 on westbound shipments from Asia to Europe. By comparison, container rates from Shanghai to Europe slumped to under US$500 per teu in early December before a rebound caused by the pre-Christmas and Lunar New Year cargo rush. Hapag-Lloyd said rates for container cargo from Europe to Asia and the Middle East would rise by US$100 per teu from February 13, with increases on other trade lanes.

Other carriers, including OOCL, Cosco Container Lines and Maersk, subsequently announced rate rises on Asia-Europe, Mediterranean and other routes. OOCL said a US$200 per teu increase would apply on cargo from north Europe to Asia from February 15. The carrier said 'further rate restorations' would be applied this year. Coscon said surcharges to cover higher fuel costs and foreign exchange fluctuations would also rise.

Ho said the timing of the rate increases for February and March in the traditional slack season suggested some collusion among lines.

He added that rates had fallen because carriers ordered too many ships and it was unfair on exporters and cargo owners for shipping lines to now increase rates. 'Carriers made wrong decisions by ordering so much capacity. It was done out of greediness. It was a wrong management decision. They should not be asking shippers to pay for their mistake [by raising box rates],' Ho said.

The Hong Kong-based regional head of one major box line said that while he sympathised with exporters and cargo owners over the extra rate cost, existing freight rates were unsustainable and did not even cover ship operating and fuel costs. He hoped that carriers would resist pressure by shippers and cargo owners to cut the size of the rate increases - 'if it doesn't hold or carriers only get a part of it, then container lines would try in a few months' time to raise rates again'. Coscon is the only carrier so far to confirm rates will rise incrementally on some routes.

He also warned that exporters and cargo owners could face similarly robust rate increases on trans-Pacific routes in the coming weeks. He said the 15 container line members of the Transpacific Stabilisation Agreement, including OOCL, Coscon and CSCL, would meet in Hong Kong next week. And while the group does not fix rates, it is a forum for major ocean container shipping lines to develop voluntary, non-binding guidelines for rates and charges. Lines belonging to the group together control about 90 per cent of the eastbound cargo capacity across the Pacific.

The senior container company executive said a possible rate increase on trans-Pacific routes came as 'trade volumes were quite good'. The industry insider said carriers were on course to see a major increase in cargo space bookings on their container ships from retailers in the United States in the second quarter as inventories were rebuilt and buoyed by consumer demand.

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