Freight rates sink to zero as trade dives

Zero freight rates explains why shipping lines are in difficult times.

Business Times - 16 Jan 2009

Freight rates sink to zero as trade dives

Analysts say it's a desperate measure by shippers trying to recoup some costs

By VINCENT WEE

(SINGAPORE) For the first time since records began, container freight rates from Asia to Europe have hit flat zero. Apart from signalling just how dramatically trade has collapsed, the move smacks of sheer desperation as the lines try to recoup whatever revenue they can, industry players say.

Lloyd's List had earlier quoted shipping executives as saying that many lines are now charging shippers a freight rate of US$0 plus the bunker adjustment factor or the cost of bunker.

'They (the rates) have already hit zero,' Charles de Trenck, a broker at Transport Trackers in Hong Kong, was quoted as saying. 'We've seen trade activity fall off a cliff. Asia-Europe is an unmitigated disaster.'

'The report is quite accurate and it shows that the shipping lines are in a desperate situation,' the Singapore National Shippers' Council (SNSC) told BT. However, SNSC pointed out that in many cases other charges such as terminal handling charges and other surcharges are not included in the all-inclusive price the lines charge and that some of the lines are trying to recover some revenue through these other charges.

For example, sources said that within the last few days Maersk has increased terminal handling charges from China ports by over 20 per cent. Others like French line CMA-CGM have imposed a US$23 per container surcharge on freight going on ships through the Gulf of Aden. This especially affects shippers using the Asia-Europe trade lane because the bulk of the cargo goes through the Gulf of Aden.

The freight rates are determined by market forces and therefore have to fall in reaction to these, said SNSC, but it pointed out that the lines are still trying to get whatever they can by arbitrarily imposing extra charges. The low-rate environment looks like it will be a prolonged one and the survival of individual lines will depend on whether they have sufficient cash to sustain themselves.

'The situation is very bad for the liners and is perhaps one of the worst seen so far,' SNSC said. Since they have already cut as much capacity as they can so far, they are now trying to move as much volume as possible to fill empty slots.

In that sense, some of the lines' non-contract customers may be subsidising the others because of the abundance of space on vessels. By way of illustration, one industry player said that it's like taking on a fourth passenger just to fill the taxi in exchange for helping out with petrol costs.

'We don't think it's sustainable but it's really a structural change that has never happened before and it depends on how long you consider a situation to be sustainable,' said another shipper.

Underlying the slump, of course, is the disastrous trade data from some Asian countries. Korea's exports fell 30 per cent in January compared to a year earlier. Exports have slumped 42 per cent in Taiwan and 27 per cent in Japan, according to the most recent monthly data.

Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.