Shipping lines hint at GRIs across several trades

Following recent announcements of General Rate Increases (GRIs) on the Far East route, shippers should brace themselves for a similar trend across all trades as shipping lines scramble to restore profitability. In a recent analysis of freight rate levels, Safmarine came up with some interesting figures. “If you take 2005 as an index, it’s cheaper to ship a container now than it was seven years ago,” CEO Grant Daly told FTW in Johannesburg last week. “Freight rates haven’t kept up with inflation and the biggest challenge against that is bunkers and fuel costs which are a significant part of operating costs – and which are nowhere near the levels of 2005. “Those factors point to an industry under pressure and the publication of publicly listed companies’ results last year and during the first quarter speak very strongly to the reality of the pressure that the industry is under.” According to Daly there is a real focus on addressing supply/demand and rate levels. “There have been a number of initiatives in terms of GRIs that have been pushed through and that are sticking,” he said. This is particularly true of the Asia-Far East-Europe route, which is one of the biggest trade lanes and is a lead indicator. And while it doesn’t dictate what is happening on other routes, there are similar initiatives and developments elsewhere in the world. Clearly the success of GRI implementation depends on supply and demand. According to the line’s southern Africa cluster manager, Jonathan Horn, the Safari service remains “pretty full” inbound as does the Middle East, Indian subcontinent service. The bottom line however is that the shipping industry is not sustainable – and something needs to be done. Equally there is recognition that customers are also under pressure, “but you have to take a long-term pragmatic view,” says Horn. “If we’re not making sustainable returns on investment over the business cycle – and we understand it is a cyclical business – then our shareholders will not be prepared to invest in worldclass tonnage and equipment which are essential to provide customers with the level of service necessary to compete globally. If you start losing that, there’s even a greater cost for customers.” DAL Agency Johannesburg branch manager Markus Popken agrees that the industry is not sustainable – and while DAL has not implemented any GRIs as yet, he said they would be watching the market very closely. Mediterranean Shipping Company chairman Captain Salvatore Sarno commented to FTW recently on the issue of Far East rates that it was a question of survival, with shipping lines losing millions of dollars on a daily basis. Durban-based marketing director Glenn Delve told FTW that MSC had already introduced GRIs on the East Africa, Middle East, India and Gulf services but no further increases were planned for the immediate future. Although the line would like to see further increases, it’s a question of what the market can bear. According to Delve there are no immediate plans to hike rates on the Europe route, for example, which he describes as fairly stable. While CMA CGM announced a westbound GRI on the Far East route effective from May 15, at this stage it’s the only GRI officially announced, GM sales and marketing Paul Zunckel told FTW. He was however in full agreement about the lack of sustainability of the industry at present. “Shipping lines have reached stage where there are only two things that can be done – cutting costs and putting up rates. We’ve cut costs to the bone and bent over backwards to operate more efficiently and try to be as lean and mean as possible. There’s no meat left on the bone and at current rates we cannot operate at a profit – and if you’re not operating at a profit you can’t offer a viable service.” He believes that in the long term – for the benefit of the country and the shipping industry – lines need to raise rates to sustainable levels. “It needs to be done carefully and responsibly and implemented with good forewarning – but it certainly needs to be done.” Freight rate increases are however only a part of the equation. “We will continue to address costs and seek efficiency gains wherever possible,” said Safmarine’s Daly. From a customer perspective, if shippers can plan their supply chains with greater confidence and plan their stock levels, the consequence is cost reductions. “It’s really a question of trying to spend the time understanding our customers’ businesses and how we can partner together.”