Asia-North Europe Carriers Need to Lift Spot Rates
- Business & Finance
Lack of attention paid to lifting spot rates on the Asia-North Europe trade is threatening to send many carriers back to the red, according to UK-based shipping consultancy Drewry.
At present, Drewry believes that carriers can make similar overall profit as last year (approximately USD 6 billion) as costs are being helped by lower bunker fuel and some network improvements through the mega-alliances.
“However, this forecast could easily be derailed as freight rates in many Asia export trades are in a tailspin, and if this persists we will undoubtedly have to trim it back significantly,”Drewry said.
The freight rate erosion is most damaging to carriers in the big Asia to North Europe route, with the Shanghai to Rotterdam assessment of the World Container Index falling for 11 consecutive weeks to slump to its lowest point since December 2011. As of 16 April the WCI benchmark put average rates at around USD 480 per teu although lower prices will have been available to the market.
Despite lower bunker costs, with weakening load factors many ships will not be covering their unit costs, according to Drewry. Even if the ships were full (in which case rates would be heading in the opposite direction) Drewry calculates that around 85% of ships in the trade would be losing money on each voyage for their operators and certainly none would be contributing much to the bottom line. In that unlikely scenario all ships under 15,000 teu would be losing money.
Assuming that at least nine-tenths of all ships deployed in the trade are currently losing money it is therefore no surprise that carriers have announced a raft of blank voyages for this month, while MSC has delayed the maiden voyage of the 19,200 teu newbuild MSC Oliver.
According to Drewry, this is hardly a long-term solution as this tactic can only be expected to temporarily lift load factors by a few percentage points at best.
“These are clearly very difficult times for carriers and while they have shown an ability to raise spot rates almost as fast as they have fallen they will need to repeat that trick pretty quickly.
If they can’t, they risk the wrath of their BCO customers that have signed contracts at higher rates and who may well want to renegotiate to get closer to the spot market. A prolonged spot rate downturn will force carriers to consider the nuclear option of laying up ships,” Drewry added.