Prepare for Far East rates hikes

Freight rates on the Far East route are set to rise as shipping lines, facing the lethal combination of unsustainable rates and rising fuel prices in a generally depressed global economy, battle to stay afloat. “It’s a question of survival,” Mediterranean Shipping Company chairman Captain Salvatore Sarno told FTW last week, as he announced the introduction of a $100 per TEU General Rates Increase (GRI) on the SA-Far East route, effective mid-April. Shipping lines are losing millions of dollars on a daily basis. “The losses suffered by Maersk Line – the biggest carrier – are in the public domain. As the second largest, MSC is losing proportionately – and the only solution is a GRI,” Sarno told FTW. While it won’t be enough, and certainly won’t push the line into profit – it will go a small way towards containing the loss and covering rising costs. According to Sarno, some lines are charging $250 per TEU on the Durban- China route, a “ridiculously unsustainable” rate in his view. An additional problem is the shortage of 20-foot boxes in Gauteng. “With all the shipment of minerals – the likes of chrome and chome ore – which are now moving in boxes, there are not enough 20-foot boxes in Gauteng, which means they have to be brought from the coast by road or rail. We have already implemented a rates increase, in addition to a $100 contribution for repositioning of empties from the coast to Gauteng, and have now taken a decision to bring on another GRI of $100.” He says it’s preferable to ship containers empty to China than spend money repositioning them in Johannesburg and then shipping them at the ridiculous rates on offer. All shipping lines are in the same boat, says Sarno, who believes that some middlemen are responsible for playing one line off against another and pushing down the rates. In the big picture, SA volumes are very small compared to the eastwest trades where MSC is running 14 000-TEU vessels on four weekly services. “In South Africa we have just one service, so you can multiply by ten the losses we suffer here.” The question is what will the other lines be doing? “We are not officially announcing a GRR but there is no question we will be trying to improve revenue selectively by matching space/equipment etc,” said general manager sales and marketing at Mitsui OSK Lines, Iain McIntosh. But implementing rates increases is all about supply and demand – which is why McIntosh keeps a constant eye on market trends (see article alongside). Clearly during the first quarter demand exceeded supply for a variety of reasons, but lines that had negotiated first-quarter rates weren’t able to take advantage of their good fortune, he said. NileDutch meanwhile has adapted its strategy to market conditions and is not focusing on SA-Far East cargo because the rates are so low, CEO Pravin Parsad told FTW. “We have put in a GRI of $150 a box effective April 1 on import cargo,” he said. Maersk Line has also gone out with two announcements – the first a $300 per TEU increase on its Far East-Southern Africa service from April 1 and a further $300 from May 1, SA managing director David Williams told FTW. For export cargo a $90 Johannesburg pack charge was introduced on April 1 to cover repositioning costs, he said. “We haven’t announced export GRIs. The export market is generally more volatile and rates are based on three tiers depending on commodity and volume,” he added. According to Williams, it’s been a strong start to the year, with import volumes up not only for Maersk but reflected in good port figures as well. “But there is a lot of volatility and you can’t take anything for granted. We will be watching the supply/demand situation very closely.” “Safmarine will also be raising rates,” southern Africa cluster manager Jonathan Horn told FTW. “We have already had one GRI and more to follow from May/June. The Safari service is just not sustainably profitable for us at current rate levels and we are focused on addressing this. “If we are to provide a reliable service to our customers by continuing to invest in world class shipping infrastructure we need to make a reasonable return over the business cycle. This trade, despite a good forward bookings picture, is currently not in profitable territory.”