Overcapacity affecting container cargo rates

by Canadian Shipper

Fourteen carriers belonging to the Transpacific Stabilisation Agreement (TSA), are working on plans to reduce capacity to prop up falling freight rates, according to reports from Worldsources, Inc. and the Associated Press.

The move follows a poor summer season when TSA members, including , OOCL, APL, Cosco, Evergreen Marine, Hanjin, Hyundai Merchant Marine, K-Line, Maersk Sealand, P&O Nedlloyd and Yangming, were unable to raise rates.

Carriers have been forced to cancel both a general rate increase that would have taken effect in May and a peak season surcharge of US$300 per 40-foot unit. As a result freight rates have fallen back to 1998 levels.

The TSA follows the Far East Freight Conference (FEFC) which represents container lines serving Asia/Europe routes, in proposing a capacity cut.

Reports say the cuts are likely to echo proposals that will be discussed by FEFC members, namely the withdrawal of about 10,000 TEUs (20-foot equivalent units) of capacity a week for three months starting in October, assuming the European Union approves the move. This represents a 10 per cent cut in available cargo space on Europe-Asia routes.

As well, newly-delivered ships could also be laid up as sailings are cancelled and weekly services reduced to fortnightly.

Further capacity reductions are proposed by FEFC members early next year, while TSA plans, at a less advanced stage than those by the FEFC, could be introduced early next year. Overall, carriers posted a 15 per cent increase in the number of containers shipped eastbound last year.

Industry insiders predict there will be less than three per cent growth this year.
OOCL reported eight per cent growth in the total number of containers handled in the first half to 943,541 TEUs, compared with 873,278 TEUs a year earlier.

But this coincided with a fall of between three per cent and five per cent in freight rates. P&O Nedlloyd also saw a gain in the number of containers carried by its ships in the first six months to 1.52 million TEUs compared with 1.44 million TEUs in the same period.

Average revenue per TEU also rose to US$1,359 from US$1,323 in the same period last year. The arrival of larger vessels will also boost capacity when there is already overcapacity in the sector, depressing freight rates further.

A market report by UK firm, Drewry Shipping Consultants predicts that capacity will by about 12 per cent on Asia-Europe routes this year, compared with eight per cent on transpacific trades. This is expected to have a detrimental effect on freight rates.

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