Shipping lines operating half the world’s container vessels plan to raise Asia-US rates, ending a price war that contributed to industry-wide losses. Falling demand and a flood of new vessels may stop them.
A group of 14 lines, including CMA CMG SA, Evergreen Marine Corp (長榮海運) and Neptune Orient Lines Ltd’s APL Ltd, agreed to raise rates by US$500 per 40-foot container starting this week. The figure was a “voluntary guideline,” the Transpacific Stabilization Agreement (TSA) said last month.
The lines, now in the busiest period of the year, may have to settle for less as slumping traffic and empty ships let customers seek discounts.
“Cargo volumes aren’t big enough” to support the US$500 rise, said Bruce Tseng, a spokesman for Taiwan-based Yang Ming Marine Transport (陽明海運), a TSA member.
The group wants to renegotiate contracts signed in the past few months to raise rates after the 10 largest listed container-shipping companies all posted losses. A similar attempt in April failed as lines competed for volumes to avoid costly ship lay-ups amid a roughly 20 percent drop in Asia-US volumes. Even a US$500 increase would leave rates at unprofitable levels and 30 percent lower than a year earlier, CMA CGM said.
Container lines traditionally raise rates around the third quarter as shops stock up for the “back to school” and holiday shopping seasons. This year, cargo-box trade is tumbling as retailers pare orders amid weak demand.
“Demand is very low,” said Ken Cambie, chief financial officer of Orient Overseas (International) Ltd, Hong Kong’s biggest container line. “We haven’t seen any restocking from the retailers in the US and Europe.”
The firm reported its first loss in a decade last week. Its transpacific rates averaged 14 percent lower in the first half than a year earlier.
“Discussions to move rates back up again are pretty tough,” said Ron Widdows, chief executive officer of Neptune Orient, the owner of Southeast Asia’s biggest container line.
But a US$500 increase would leave rates “below minimum profitability” because of the need to haul empty containers back to Asia from the US, said Jean-Philippe Thenoz, head of North American lines at CMA CGM, the world’s third-biggest container carrier.
He added that the increase would stick as customers understand that it’s a “necessity” and because a US economic rebound will trigger an increase in demand.
“There are already signs of a recovery in US consumption,” he said. “We’re very optimistic for the end of 2009 and for 2010.”
Shipping lines also face more competition as shipbuilders work through container-vessel orders with a combined capacity equal to 38 percent of the existing global fleet, data compiled by Bloomberg shows.
New vessels are entering service even as a shortage of cargo forces lines to mothball existing ships in Singapore, Hong Kong and other ports. The capacity of the laid-up fleet will likely expand 66 percent by around year’s end to 2 million 20-foot containers, said AXS Alphaliner, an industry data company.
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