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  • Nov 1, 2014
  • Updated: 5:07pm
BusinessEconomy
SHIPPING

Container carriers raise rates to seek profit on Asia-Europe route

The container lines have been losing money because of overcapacity and lower demand

PUBLISHED : Friday, 26 October, 2012, 12:00am
UPDATED : Friday, 26 October, 2012, 3:36am

Europe's largest container lines are making an attempt to increase Asia-Europe rates to more than break-even levels and restore profit before the end of the year. Capacity cuts may boost their chance of success.

AP Moeller-Maersk's container line, the world's largest, and Hapag-Lloyd, Europe's No 4 line, have announced a US$500 per-standard-container rate increase from Asia to Europe starting on November 1.

France's CMA CGM, Europe's No 3 container company, will also increase Asia to Europe rates by US$500 on that date, while Hong Kong's Orient Overseas International has announced a rise of US$525 per box.

Container lines are losing money on routes from Asia to Europe because of an overcapacity of ships and slumping demand due to the European debt crisis. That has made it difficult for carriers to raise prices on the televisions, T-shirts and shoes they ship from China to such ports as Hamburg and Rotterdam.

While efforts to increase prices in March restored profits, rates have since slumped to below break-even levels.

"This will be a major trigger for Maersk and other container share prices," said Frode Moerkedal, an analyst at RS Platou Markets in Oslo. "Utilisation should improve and support higher rates."

Container carriers such as Maersk Line, Hapag-Lloyd and Hanjin Shipping have announced the removal of capacity of more than 30,000 standard containers between Asia and Europe in recent weeks.

Coupled with the planned November 1 rate rise, that may allow Maersk to achieve the full-year profit it forecasts for the year and help offset rising fuel prices in an industry in which all major operators lost money last year.

Moeller-Maersk has declined 3 per cent in the past six months, partly because of investor concerns over profitability on the Asia-Europe route. Denmark's benchmark Copenhagen 20 Index has advanced 8.9 per cent in the same period.

After the industry's concerted effort to bring up prices starting on March 1, the Shanghai Containerised Freight Index soared 54 per cent between February 24, the week before the rates were raised, and May 4. The increase did not stick: The index, which also includes rates on services to North America, remains down 22 per cent from the May peak.

Still, the container carriers' planned boosts and the capacity cuts may be too little, too late, according to Danish shipping Association Bimco, which represents 65 per cent of world tonnage.

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