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But it’s a high-wire act, or sorts, because if carriers misjudge the market and keep too much tonnage on the water, they may find their ships sailing well below capacity, which could trigger a price war. “We may not see the same levels of blanking as was pulled last year, because the volumes are stronger. There is every indication that this is a better year,” said Alan Murphy, partner and COO of SeaIntel Maritime Analysis. But with just a few blanked sailings announced so far in the major East-West head haul trades; the story has yet to play out. “From a carrier perspective, you don’t want to be the person who is the first to blank the sailing. You want to wait and see if someone else blanks, but someone has to take the first step and pull some capacity,” he said.
The carriers’ response to the Golden Week is an indication of how disciplined they are in avoiding a potentially disastrous situation of overcapacity. According to an analysis in the SeaIntel Sunday Spotlight, in 2012 carriers operating in the Asia-Europe market suspended capacity equalling approximately 63,000 TEUs or 25% of total capacity in week 41, the golden Week.
This year, it is a toss-up what the carriers will do. So far, according to SeaIntel, carriers have announced three blank sailings, meaning that so far capacity will be reduced by 25,000 TEUs equalling 10% of capacity. To reach last year’s level of pullback, carriers would need to reduce capacity in week 41 by an additional 41,000 TEUs.
CMA CGM to create Indian Ocean trans-shipment hub
CMA CGM, the world’s third largest container line in deployed capacity, plans to make a port on a French Island in the Indian Ocean into a trans-shipment hub to serve markets in Africa, the company said in a statement. A trans-shipment hub on the island of Reunion, 200 km/120 miles east of Madagasscar and southwest of Mauritius, will open in late 2015 or early 2016, according to a memorandum of understanding signed. It aims to make ‘Port Reunion the CMA CGM Group maritime hub in the Indian Ocean’. “Cargo from all over the world will be unloaded on the island, before being loaded towards new destinations,” the company said in a statement. A cornerstone for the future facility was laid on Thursday by French President Francois Hollande, who was on the island to promote economic opportunities such as the new port and CMA CGM Vice Chairman Rodolphe Saade. The project would double the capacity of the existing port, according to the Reunion newspaper Le Journal.
Asia-Europe rate increase, a flop
The latest Shanghai Containerised Freight Index (SCFI) shows that rates slipped $ 143 or 10.7% to $ 1,198 per TEU between Asia and Europe, representing the largest fall in rates since February. Rates this time last year stood at $ 1,334 per TEU. Prices on rates between Mediterranean and Asia continued this downward trend slipping $ 89 or 5.5% to $ 1,524 per TEU, according to the latest SCFI.
Richard Ward, a broker at London based Freight Investor Services said reports suggest the decline can be attributed to both ‘an increase in allocation from some alliances’, and to Zim’s reported deployment of one vessel into the market with a flat rate of $ 1,000 per TEU. “This has significantly undercut the market and runs the risk of being the catalyst for further aggressive declines,” said Ward. In response, carriers are looking to introduce a GRI from 1 September between $ 400 and $ 950 per TEU. “Although it is too early to determine exactly how successful the increase will be, it should not come as a surprise to see at least a partial implementation, given the success of recent GRIs,” said Ward.
He also said news has emerged this week that the world’s largest ocean carrier, Maersk Line, is looking to scale down its’ use of long term contracts on East-West trades in favour of spot rates, as it seeks further to improve its’ results. “Management have reportedly lost patience with the un-sustainability of the Asia-Europe trades, particularly when such a large portion of the carrier’s fleet is tied to non-profitable business,” he said.
Maersk profits sore despite drop in freight rates
Despite a 2.7% drop in revenue per 40 ft unit to $ 2,880 as freight rates remain under pressure, Maersk Line the world’s largest containership operator posted a net operating profit of $ 547 million in April-June period, equivalent to a return on invested capital (ROIC) of 10.8% and up from $ 439 million or 8.5% a year earlier. That brought first half profits to $ 1 billion against $ 643 million in the opening six months of 2013. The ROIC was above the medium term target of 8.5%.
The line has now achieved seven consecutive quarters of earnings before interest and tax margins of 5% above the industry average. Revenue increased 3.8% to $ 6.9 billion in the second quarter, lifting the six month turnover to $ 13.4 billion. Unit costs were down by 4.4% to $ 2,585 per FEU, with average bunker consumption per 40 ft box cut by 7.2% compared with the second quarter of 2013.
Total bunker costs were down by 2.8% to $ 1.3 billion in the second quarter as fuel consumption was reduced, despite Maersk Line and the other container brands in the group carrying more cargo. Scrapping of the P3 Network should have ‘no material impact’ on the carrier’s anticipated 2014 results, the company said.
Rise in India’s container volumes
Container throughput at major state owned ports in India expanded 5.3% year-over-year during April to July, the first four months of Fiscal year 2014-15, according to preliminary figures released by the Indian Ports Association. Total volume for the four month period reached 2.64 million 20 foot equivalent units, up from 2.5 million TEUs a year earlier. Containerised cargo tonnage rose 4.18% to 40.2 million tons from 38.6 million tons.
The port of Jawaharlal Nehru (Nhava Sheva), the country’s busiest container gateway, recorded an 8% improvement on the same period last year, handling 1.49 million TEUs. “We are hopeful that the volume recovery will accelerate in the coming months, given the improving overall trade scenario,” a port official said.
Chennai Port, the second largest container hub, moved 520,000 TEUs, up 3.5% year-over-year. The volume of containers handled at other major ports also increased on a year-on-year basis, according to the latest statistics. Tuticorin Port, now known as V.O. Chidambaranar, handled 179,000 TEUs, compared with 165,000 TEUs. Volume via DP World managed Vallarpadam Container Trans-shipment Terminal in Cochin Port totalled 120,000 TEUs, versus 109,000 TEUs a year earlier.
In terms of overall tonnage, major ports reported consolidated cargo throughput of 191 million tons from April to July, a gain of 3.31% over the same months last year, Kandla Port was the top cargo handler, with volume of 30.8 million tons, followed by Paradip at 23.3 million tons, Nehru at 21.7 million tons, Visakhapatnam at 20.6 million tons, Mumbai at 19.3 million tons and Chennai at 17.7 million tons.
Bunker prices continue to decline across the board
Nine straight weeks of steady declines in pricing of low sulphur bunker fuel have brought the price per metric ton down to the lowest level in more than three years. The price of low sulphur fuel per metric ton in Rotterdam the Netherlands, a global indicator of bunker prices, has dropped weekly since mid June.
This week the price per metric ton stands at $ 571.90, which is 7.4% lower than the same week in 2013. The nine week plummet has forced prices down 11.8% a difference of $ 75 per metric ton. Low sulphur prices have dropped 7.1% since Jan 01st. High sulphur prices also dropped for the second straight week.
The price, provided daily by Bunker Vision, averaged out to $ 585.90 per metric ton, 6.2% lower year-over-year and a 0.9% drop from the prior week. High sulphur prices haven’t been recorded this low since January. Since the first of the year, high sulphur prices have dropped 4%. Bunker fuel prices typically follow the pricing of crude oil.
Brent, an index of spot market fuel prices, has also dipped in recent weeks. The drop is due, in part to rise in the output levels of oil in Libya, which is producing nearly 535,000 barrels a day, which is 100,000 barrels more than its average.
The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).
