Shipping lines may face losses in peak season
Shipping News
Published August 1, 2011
(SINGAPORE) Plunging rates for chartering container vessels that carry sneakers, furniture, and flatscreen TVs may signal a US consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year.
Problems: Shipping lines are also contending with fuel costs that have jumped 53% in a year in S’pore trading, alongside a rise in oil prices, and an expanding fleet
Fees for hiring vessels have fallen 9.3 per cent since the end of April, according to the Howe Robinson Container Index, which tracks charter rates for a range of vessels.
Last year, the index surged 56 per cent in the period, as lines added ships on demand from US and European retailers restocking for the back-to-school and holiday shopping periods.
‘The troubling part is that charter rates are falling in the peak season,’ said Johnson Leung, head of regional transport at Jefferies Group Inc in Hong Kong. ‘Sentiment among consumers and retailers isn’t very strong.’
Lines including Hanjin Shipping Co, Orient Overseas (International) Ltd, and Mitsui OSK Lines Ltd have also delayed the introduction of peak-season surcharges on Asia-US routes by about two months as US unemployment above 9 per cent and slowing sales of new homes damp demand.
Combined inbound container traffic at Los Angeles and Long Beach, the two busiest US ports, dropped 4.6 per cent last month, the first decline since January 2010, according to data compiled by Bloomberg.
‘The delay in imposing peak-season surcharges shows how dire the situation is,’ said Um Kyung A, a Shinyoung Securities Co analyst in Seoul. ‘The US economy isn’t recovering fast enough to help increase demand.’
US orders for durable goods unexpectedly dropped 2.1 per cent in June, the Commerce Department said last week, as companies lost confidence in the strength of the recovery.
The cost of shipping 40- foot containers to the US west coast from China has slumped 42 per cent over the past year to about US$1,600 per box, according to data from Clarkson Securities Ltd, a unit of the world’s largest shipbroker. Derivatives show the price won’t exceed US$1,962 before the end of next year.
Concerns about the sustainability of economic growth are also contributing to container lines renting ships for shorter periods. Average charter lengths have declined to seven months from 10 months at the beginning of the year, according to Alphaliner.
Shipping lines are also contending with fuel costs that have jumped 53 per cent in a year in Singapore trading, alongside a rise in oil prices, and an expanding global fleet.
There were 5,056 container ships afloat at the start of July, compared with 4,968 at the start of January, according to shipbroker Clarkson Plc. Total capacity increased 5 per cent in the period to 14.89 million boxes.
Rising fuel costs and declining rates mean that China Shipping Container Lines Co, the nation’s second-biggest cargo-box carrier, will likely report a first-half loss, it said last week. Hong Kong-based Orient Overseas last week said the full-year outlook was ‘disappointing’.
Kawasaki Kisen Kaisha Ltd, Japan’s third-biggest shipping line, has also made losses on some container routes, president Jiro Asakura said in an interview last month.
Freight rates may rise later in the year as US retail inventories are still low by historic standards. May stockpiles were 7 per cent down from three years earlier. That could help cause retail container imports to jump more than 10 per cent from last year in September, October, and November, according to the National Retail Federation.
Shipping lines have also cut services in a bid to boost rates. Mitsui OSK and partners APL Ltd and Hyundai Merchant Marine Co suspended an Asia-US service earlier this month.
Compania Sudamericana de Vapores SA has also halted a similar route. AP Moeller Maersk A/S, Mediterranean Shipping Co, and CMA CGM, the world’s three largest container lines, also delayed the start of a joint Asia-US service to next year from May, according to Alphaliner. — Bloomberg