Seafreight rates firm as demand rises

Shipping lines have happily reported to FTW that seafreight rates are tending to stabilise or even climb, but forwarders are accusing them of manipulating the supply/demand ratio. The lines have made no secret of the fact that, throughout the last year, they have been cutting their vessel capacity. And they are now happy to admit that this big downward adjustment in space supply has inevitably seen rates firming or even increasing. One line on the Far East trade, although it remained unnamed, was quite open in admitting that information had been released in recent times acknowledging that it had cut 11 vessels from its fleet. “And this reduced capacity compared to demand,” FTW was told, “has given us reason for increased freight rates. “Space is very much in demand just now, and our westbound ships into SA are sailing 100% full at a time of the year when we normally see a slump.” Our commentator attributed most of this extra inbound trade to boosting inventories prior to the 2010 Soccer World Cup. David Williams, MD of Maersk Line, agreed. “Certainly,” he told FTW, “in the Far East trade the markets, both in and out, are firming up. And where we can go for general rates increases (GRIs) we will.” But, he added, it has to be remembered that seafreight rates are still well below what they were in 2008 – prior to the big economic crunch. Margrit Wolff, MD of Buffalo Freight Systems, confirmed this two-way Far East trade increase – and she also suggested a lot of the “extraordinary increase” in rates had been due to capacity cuts by the lines. But Wolff also told FTW that there had been a lot of increased demand – with a particular focus on China. Much of the big increase in exports from Africa to China she attributed to growing demand for raw materials – minerals and the like – as Chinese industry continued to bump up production output. “On import trade it has to be remembered that China has massive capital projects in Africa, and has to supply these,” she said. “I have also heard some hints from the shipping industry that this is likely to see a huge capacity increase soon.” Meanwhile, there have been no big changes in trade with the US and Europe, according to our commentators. Glen Delve, Durbanbased marketing manager for Mediterranean Shipping Company (MSC), told FTW that there was no shortage of space out of Europe, for example, and that his line’s attitude was that rates would remain stable. “No big ups or downs,” he added. Williams reflected the same thoughts, and said he had seen no “dramatic changes” recently in either the US or Europe trades. He did, however, note one area where growth had been noticeable. That was on reefers (refrigerated containers) into Europe – which he suggested had “taken off”. Part of this was due to continuing increased demand from Europe as the SA fruit season progressed, but it had also been accentuated by the current global shortage of reefer boxes. Not very happy about the whole affair was Sue Wood, operations director of Cargocare Freight Services. “Rates have definitely been firming up,” she told FTW, “and we’ve been aware of this since December. Also co-loaders (cargo consolidators) have already instituted GRIs. That’s unusual for this time of year, and indicates that they foresee continued rates increases from the shipping lines.” And she condemned the lines for their huge capacity cuts. “With the lines having manipulated the supply/ demand situation in the market, it has artificially pushed the rates up.” Not that she didn’t agree that a lot of the lines were in dire financial straits because of the global recession. But everyone is sharing this pain, Wood added, and it was not fair of lines to indulge in some rather dubious market tactics to stay alive. One such tactic she rejected was the news in sister publication Cargo Info News last week that member lines of the TransPacific Stabilisation Agreement (TSA) – with most of the world’s major lines in this membership – were trying to enforce an emergency revenue charge (ERC), as part of an interim effort to boost revenue over the first half of 2010. The TSA guidelines recommended an ERC over and above existing surcharges, adjustment factors and GRIs on the transPacific trades. This saw the Hong Kong-Los Angeles FEU spot rate jumping 10% in a week, according to price data provided to London’s Drewry Shipping by nonvessel- operating common carriers in Hong Kong. But Wood classified this as “an unfair market strategy” – and tended to agree with Asian shippers, who attacked the ERC as exploiting a “monopolistic position”, and called on Asian governments to remove the antitrust immunity enjoyed by carriers. “The trouble with this sort of tactic is that, if it works, it could spread elsewhere, and we might even see it on the local shipping scene. And the unfortunate thing is that it does seem to have worked. According to Drewry’s, the emergency action saw transPacific rates jump 17% last week.