Container shipments from Asia to Europe unprofitable due to fuel cost
Spot prices fell 3.8 percent to $1,172 per standard container in the week ended Sept. 21 after dropping 5.1 percent in the previous seven days, and have tumbled 38 percent since June 29, according to London-based ship broker ICAP Plc.
Shippers need rates of $1,200 to $1,350 a box to make money on the route linking producers in China with markets in Europe, according to Kai Miller, head of ICAP’s container desk. This week marks the first time rates have fallen below that level since Feb. 24, the broker’s data shows, and suggests earnings at companies including Maersk and Hapag-Lloyd AG may come under pressure in the usually buoyant second half, when retailers stock up with Asian goods for the Christmas shopping season.
“Break-even rates are higher than in previous years due to still-soaring bunker fuel prices,” Miller said by e-mail. “Rates will continue to stay under pressure in the fourth quarter as overcapacity is still not matched by a recovering macro economy. Profits will subsequently decline again, with potential losses.”
Copenhagen-based A.P. Moeller-Maersk A/S’s market-leading Maersk, which suffered a $372 million net loss in the first half, said Aug. 14 it expected a “modest” full-year profit after shippers raised rates. Germany’s Hapag-Lloyd said the same day that further rate increases were “crucial” for it to offset rising fuel costs and post an annual operating profit.
Since the end of the second quarter, the overall Shanghai Containerized Freight Index -- a measure of prices for cargo leaving the world’s busiest port -- has dropped 14 percent.
Rates between Shanghai and the Mediterranean slid 2.3 percent to $1,220 this week and are down 36 percent since the end of June. Bunker fuel prices have jumped 14 percent to $646 a ton from this year’s low on June 22, Bloomberg data shows.
E-commerce company INTTRA, which handles 525,000 shipments a week, said Aug. 23 that some global trends are negative for the first time since 2008, indicating “a poor holiday shopping season.” Top export economies China, the U.S., India, Japan and South Korea are all affected, and imports to the U.S., Germany, the U.K., Spain, France, Belgium and the Netherlands are down.
European economic confidence fell to the lowest since 2009 last month while unemployment in the euro area has passed 11 percent as governments struggle to contain a debt crisis that has prompted the bailouts of Greece, Ireland, Portugal and Spain. The U.K., Spain and Italy are all in recession.
“Capacity on the European trades is too big and continues to grow, while the macro economy is uncertain,” Miller said.
China Cosco Holdings Co. and China Shipping Container Lines Co., the nation’s two largest listed ship operators, reported widening first-half losses. China Shipping Container had a loss of 1.28 billion yuan ($203 million) because of fuel costs and lower Asia-Europe rates. Rising competition may hurt rates in the second half and oversupply will “worsen,” China Cosco said.
The most cost-efficient lines may still be making a profit between Asia and Europe as cost-cuts, slow-steaming and bigger ships offset fuel-price rises, said Peter Sand, an analyst at Danish shipping association BIMCO, which represents 65 percent of global tonnage. Such lines likely break even at $900 to $950 per container, Sand said, while forecasting a continued fall in rates until the deployed tonnage gets back into “balance.”
A lack of demand in August forced Hapag-Lloyd to delay a rate increase on routes between East Asia and northern Europe and to cut a planned peak-season charge by more than half.
The G6 Alliance of Hapag-Lloyd, Neptune Orient Lines Ltd.’s APL Ltd. and Orient Overseas International Ltd. will halt one of six weekly Asia-Europe services next month, and CKYH, including Cosco and Hanjin Shipping Co., will cut one of five services.
Maersk sees Asia-Europe volumes falling 3 percent in 2012, Chief Executive Officer Soeren Skou said this month. He has cut capacity 10 percent and will take further steps next quarter.
Source: Black Sea Grain