Monday, 1 October 2012

No profit on Asia-Europe route for Boxships

There is no money to be made carrying containers from Asia to Europe, thanks to flagging demand and rising fuel costs. A Bloomberg report says that companies, “including Maersk Line”- a major player- are hard hit by these latest developments.
“Break-even rates are higher than in previous years due to still-soaring bunker fuel prices,” said Kai Miller of ICAP. “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.”
Miller says that unless box rates stay above $1,200 to $1,350 a box on the Asia-Europe route, shippers will not be making any real money. The inability of carriers to pass on fuel hikes to the customers in the present demanding market is cited as another big reason why container lines are starting to get worried; this is the first time since late February that rates have fallen this low, and, says Bloomberg, adding that “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”. With spot prices crashing more than a third since the end of June, this seems like a distinct possibility; Maersk says that volumes will drop even further.
The Shanghai Container Index has dropped 14 per cent since June, with rates down nearly 36 per cent. Meanwhile, bunker prices have “jumped 14 per cent to $646 a ton from this year’s low on June 22”, Bloomberg says. With the slowdown extending beyond Europe into Asia and the US, shippers are far from optimistic that a reversal would be seen anytime soon. E-commerce Company INTTRA said last month that some global trends are negative for the first time since 2008. Analysts expect exports to be further hit later this year.
Some companies operating bigger ships at slower speeds may still be making a profit, says Peter Sand of BIMCO, because they break even well below the thousand dollar per container mark. He too, expects the rates to soften further.
Most container carriers are struggling, though, with market leaders like Maersk having declared a loss of almost four hundred million dollars in the first half of the year. China Cosco Holdings Co. and China Shipping Container Lines Co. have reported losses too, the latter to the tune of $200 million. Worse, the second half of the year will be worse, China Cosco says. Germany’s Hapag Lloyd has made a statement saying that rate increases were crucial to offset rising fuel costs.

Market player doubt this will happen easily. Public anger in Europe at austerity measures announced recently is adding to the uncertainty about the future. High unemployment and sovereign debt continue to cast a shadow over any European recovery; economic confidence fell to the lowest since 2009 last month. With half a dozen countries- including Ireland, Spain, Italy and the UK- in recession, this is hardly surprising.
“Capacity on the European trades is too big and continues to grow, while the macro economy is uncertain,” warns Miller.

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