Fuel costs and declining rates point to lower line earnings

Container lines are anticipating a decline in second-half earnings because of slumping Asia-Europe trade, rising fuel costs and declining rates, reports Bloomberg. “We are looking at a further deterioration in liner results” industry-wide in the second half, Jeremy Nixon, CE of Nippon Yusen KK’s global liner management division, said. “European consumers are extremely conservative.” Bloomberg notes that spot rates for Asia-Europe shipments have fallen below break-even levels as plunging demand leaves carriers unable to fill ships. The Financial Express reports, for example, that the Baltic Dry Index (BDI), that scales freight rates, was 744 last Friday against 1 100 on average in 2008. With the fall in freight charge, rising costs of other expenses including port dues, expenses of shipping agents, crew wages etc, are also compelling the ship owners to switch over to abandoning ships, industry sources said. Fuel costs have also surged 14% since the end of June because of rising crude prices. “Shipping lines are probably more pessimistic than in the second quarter,” Randy Chen, special assistant to the president at Taipei-based Wan Hai Lines, said. “Rates have come down, costs have gone up, fuel has gone up – it’s becoming a problem.” Asia-Europe container shipments plunged 13% from a year earlier in July, according to Kuehne & Nagel International, the world’s largest organiser of sea-freight shipments, as the Euro region debt crisis sapped spending. Asia-Europe rates fell to US$1 172 per container in the week ended September 21, compared with a break-even of at least US$1 200, according to shipbroker ICAP. The demand slump has undone increases won earlier in the year when lines abandoned price wars and increased cooperation to win higher fees.