Exporters to bear brunt as shipping lines raise rates

Container lines will increase freight charges on routes from Asia to Europe and the Middle East next month to boost revenue and profit

PUBLISHED : Friday, 15 February, 2013, 12:00am
UPDATED : Friday, 15 February, 2013, 5:20am

Exporters shipping goods from Hong Kong and other Asian ports to Europe and the Middle East face higher freight charges next month as container shipping lines attempt to boost revenue and profit despite lacklustre demand.

The increases would be equivalent to a 50 per cent surge in the cost of shipping a 20-foot container from Shanghai to Europe based on current spot freight rates.

The move comes as cargo owners are also seeing carriers plan a series of freight rate increases on routes from Asia to the United States in the next three months.

Orient Overseas Container Line, the Tung family-controlled shipping firm, became the latest box line to confirm rate rises on the Asia-Europe-Middle East trades in messages to customers at the end of last week.

The carrier is planning a US$700 per teu (20-foot equivalent unit) increase on westbound services from Asia and India to Europe and the Mediterranean from March 15. It is also seeking a US$500 per teu rise on refrigerated container shipments from Asia to the Middle East.

OOCL had already confirmed increases on Europe-Asia shipments of US$200 per teu and US$300 per feu (40-foot equivalent unit) from March 1. Justifying these increases, the carrier said "ocean freight rates continue to be below the required level to cover basic operating costs or transportation costs".

Cosco Container Lines and other carriers, including European lines Maersk and Hapag-Lloyd, have confirmed their intention to raise rates from March 15. Coscon will implement a US$775 per teu increase on shipments to Europe and the Mediterranean with rises on other services from Asia, while Maersk has proposed a US$600 per teu rise and Hapag-Lloyd a US$750 per teu increase.

By comparison, the spot container rate from Shanghai to Europe stood at US$1,301 per teu last Friday, according to the Shanghai containerised freight index produced by the Shanghai Shipping Exchange. This was a week-on-week drop of 15 per cent to reflect falling demand caused by the approaching Lunar New Year holiday. The spot rate from Shanghai to the Mediterranean fell 20 per cent to US$1,258 per teu.

Peter Sand, chief shipping analyst with industry lobby group Bimco, thought it was likely that the rate increases in mid-March "will be somewhat successful".

He added: "It will pave the way for a rather decent average full-year rate level because it makes room for subsequent slides [in rates] throughout the year but at a safe distance from break-even levels."

Representatives for Hong Kong cargo owners were not available because of the Lunar New Year holiday.

Carriers are pushing through with the increases even though some are cutting services to cope with falling demand.

Maersk Line, the world's biggest container carrier which has about 20 per cent of the westbound Asia-Europe market, will extend the suspension of one of its 10 Asia-Europe services until April due to "declining demand on the Asia-Europe trade". This is in addition to the temporary cuts in mainland port calls as a result of the lack of shipments from China due to the Lunar New Year.

"The February and March suspension brings the total capacity reduction on [Maersk's] Asia-Europe network to 21 per cent compared with February 2012," the carrier said.

Figures from data company CEIC and Barclays research show that Chinese exports to Italy, France and Germany all fell in value terms last month, while the value of exports to Britain and the Netherlands increased slightly. Overall, there was a US$1.5 billion gain to US$336 billion in the value of exports to the European Union between February 2012 and last month.