Maritime market update

General outlook

Global container freight volumes have continued to contract year over year. Container volumes shipped worldwide in June totalled 9,940,800 TEUs, a decline of 5.5% compared to May and 1.75% year over year.

The world’s largest exporting region Asia, totalled 3,314,700 TEUs in June, which is less 5% from May and 1.5% year over year and Europe the single largest importer from other trading Continents showed a decline of 7% year over year. However, the Northern America imports increased by 7%. The idle global container ships have increased to 271 vessels with a capacity of 376,000 TEUs, an increase of 19% compared to four weeks ago. With cutbacks on capacity to ease pressure on freight rates the idle fleet is expected to swell up to 700,000 TEUs by the end of this year.

Container liner freight rates decline

Having witnessed a surge in freight rates since January 2012 spot freight rates from Shanghai to Rotterdam has fallen to its lowest level for over five months. The Shanghai Freight Container Index Asia –Europe sector fell by approx. 5% last week to US$ 1434 per TEUs.

To quote Lloyd’s Loading List: “The rate level has been slowly declining ever since it hit peak in early May. Repeated implementation of rate increase has helped to temporarily push rates back up, but the slow decline in trend remains evident.” However, shipping lines have managed to maintain Asia Europe spot rates significantly higher than what it was by end August 2011 (US$ 1,534 – TEU). With supply and demand balance going against carriers, shipping lines are bound to cut capacity on some Asia Europe routes in order to prevent a further deceleration of freight rates.

Meanwhile, the manufacturing sector on many markets in the month of August has witnessed contraction. The China’s official Purchasing Manager Index fell below 50 for the first time since November 2011. In India where manufacturing sector expanded for well over three years has seen a drop of export orders in August.

Euro Zone Purchasing Manager Index has fallen to 45.1 and it is the 13th month below the 50 mark. The weakening manufacturing sector will have an adverse impact on reviving freight rates to profitable levels.

Profitability of shipping lines under stress

China Shipping Container Lines despite posting a 15.2% growth in the carriage of containers made a loss of US$ 97 million during the first half of the year. Similarly, China COSCO Holding recorded a massive nett loss of US$ 652 million during the first half. Though Maersk Line has moved into the black recording a profit of US$ 227 million for the second quarter compared to a loss of US$ 95 million an year earlier, the carrier posted an overall loss of US$ 372 million in the first half of this year.

The rising cost of fuel has pushed Hapag Lloyd to the red during the second quarter. The shipping line recorded a loss of US$ 9 million compared with US$ 13 million during the same period last year. CSAV the South American Shipping Line posted a first half loss of US$ 345 million, though result being better than last year.

India to relax Cabotage Law

It has been reported that India is planning to relax its Cabotage Law which will permit foreign owned and operated ships to provide services between Indian ports. India’s cabotage law is similar to those in many countries including the US where the Jones Act requires USA port to port shipments to be confined to US flag, vessels built, operated and manned by US companies. The proposed easing of cabotage law – would it facilitate the Indian Port of Vallapadam Terminal operated by DP World to emerge as a transhipment hub for South Asia, is a question posed by many.

To quote the Journal of Commerce: “By relaxing the requirement, port to port cargo shipments within India be carried by Indian owned and operated ships, the government hopes to attract more containerised cargo by reducing time and cost for larger foreign owned container lines that now tranship containers bound for/or coming from India at neighbouring transhipment hubs.”

Meanwhile, Indian container traffic which provides the backbone to some transhipment hubs in the region remains flat year over year from April through July, the first four months of fiscal year 2012/13. India’s largest container port Jawaharlal Nehru Port (Nhava Sheva) did record a flat growth in the same period at 1.44 million TEUs. It is rumoured that PSA (Singapore) the global giant is planning to withdraw from Nhava Sheva fourth terminal having committed a high revenue share of 50.8%. The shortage of Container Port capacity in India may affect demand for transhipment containers in South Asia, which will result in the need to revisit envisaged capacity enhancement in the region.

Global ports mixed results

Hong Kong Hutchinson Port Holdings (HPH) is closing its Amsterdam Container facility due to non availability of sufficient container volumes. This facility opened in 2001 as Ceres Paragon had a capacity to handle 1.2 million TEUs per annum.

In the Hamburg – Le Harve range in Europe during the first half the growth was only 1% with Le Harve and Bremerhabven recording a growth of 11% and 7% respectively. Volumes in Rotterdam dropped by 2% and Hamburg had a gain of 2%. With the Government of Pakistan negotiating with a new operator, PSA (Singapore) has decided to vacate its facility at Gwadar. In the Far East container throughput in China increased by 8.9% during the first half of 2012 over the previous year to 93.5 million TEUs. The largest port in China, Shanghai, handled 15.8 million TEUs, witnessing a growth of 3.7%.

The writer is a maritime economist