Container-Rate Plunge Shows Mediterranean Cast Adrift

Container-Rate Plunge Shows Mediterranean Cast  Adrift

Friday, 16 November 2012 |  00:00
Europe’s sovereign-debt crisis has  led to a collapse in the rates container lines charge on routes from China to  the Mediterranean, creating a two-tier price structure as they boost fees for  destinations further north.
The cost of a container shipment  from Shanghai to Spain or Italy has tumbled 46 percent to $955 in five months,  according to ICAP Plc, with the spread between south- and north-European rates  widening to $436 as of Nov. 2 from $42 a week earlier.
“Fundamentals on the Asia-Med are  dire and we’re hearing demand is very, very low,” said Richard Ward, an analyst  at ICAP, which provides ship broking services. “That’s led to the decline in  rates as carriers look to secure what cargo they can.”
While the holiday season  typically marks a boom in consumer goods deliveries, households in Greece,  Italy, Portugal and Spain are cutting back on gifts amid rising unemployment and  public-sending reductions. The plunge in south-European rates may weigh most on  A.P. Moeller-Maersk A/S (MAERSKB), CMA CGM SA and other lines with multiple  Mediterranean container services.
“The Mediterranean area has  experienced a much sharper drop than north Europe,” A.P. Moeller-Maersk Chief  Executive Officer Nils Smedegaard Andersen said in a phone interview on Nov. 9. “Consumers in northern Europe are cautious, while consumers in the south are in  an outright crisis.”
Shares of Copenhagen-based Maersk  have gained 8 percent so far this year, valuing it at 175.3 billion kronor ($30  billion).
Southern Exposure
Of 10 weekly Asia-Europe services  operated by Maersk Line, the world’s top container shipper, five go to the  Mediterranean or Black Sea. Marseille, France-based CMA CGM, the No. 3, has four  routes to the region, the same number as from East Asia to northwest Europe,  while Hamburg-headquartered Hapag-Lloyd AG is less exposed, with one route from  Asia to the Mediterranean and one to the Black Sea, versus six services to the  north.
Container rates from Asia to  northern Europe and the Mediterranean rose 22 percent and 18 percent,  respectively, as of Oct. 26 after companies including Maersk and Hapag-Lloyd  announced fee increases of $500 per box, ICAP figures show.

Subsequent data reveals the price  increase stuck only for northern ports, where charges rose a further 13 percent  to $1,491 per standard container on Nov. 2, while dropping 17 percent for  Mediterranean routes. That’s the first time since July 27 that rates have moved  in opposite directions.
Container volumes on  Mediterranean sailings from Asia have slumped to about half those for  north-European trips, according to Danish shipping association Bimco, which  accounts for 65 percent of world tonnage.

Earnings Gain
The resilience of north-European  markets allowed leading container lines to raise rates significantly in the  second quarter, boosting margins and earnings in subsequent months.
Maersk Line recorded net income  of 2.87 billion kroner in the third quarter, versus a year-earlier loss of 1.53  billion kroner, the parent company said Nov. 9. There’s likely to be a “modest” profit for the full year, it reiterated, while cutting an estimate for annual  growth in global container demand to 3 percent from the 4 percent predicted in  August.
Hapag-Lloyd, Europe’s  fourth-largest line, this week said third-quarter net income rose more than  fourfold to 45.6 million euros ($58 million) as the average freight rate  advanced 8 percent to $1,647 per box. Still, prices fell in September as the  usual peak in demand prompted by retailers stocking up for the holiday period  failed to materialize, the company said.
Third-quarter container volumes  between Asia and Europe fell 15 percent on so-called “head-haul” legs – those  sailings on which boxes are fullest – according to Maersk, and though Germany  continues to sustain demand, outperforming euro- area partners, recent numbers  point to growth grinding to a halt.
‘Downward Pressure’
German factory orders and  industrial output fell more than economists forecast in September and business  confidence is at a 2 1/2 year low. The economy may shrink in the fourth quarter,  according to the Bundesbank, and the European Commission on Nov. 7 halved its  2013 growth forecast to 0.8 percent.
That could combine with a  relaxation of capacity controls at shipping lines and begin to depress rates on  container routes to northern Europe, according to ICAP’s Ward.

“Carriers  were more successful in pushing through a general rate increase for  Asia-northwest Europe as they took corrective measures by temporarily removing  surplus capacity,” he said. “This capacity is now being redeployed and in  conjunction with traditionally lower cargo volumes during the final few months  of the year, it will place downward pressure on rates.”
Source:  Bloomberg