Weekly GRI Roundup
OOCL will increase its rates for Asia-Australia trade on April 1. Cargo rates from Singapore, Malaysia, Thailand, Indonesia, Vietnam, Cambodia, the Philippines, India, Myanmar and the Middle East to Australia will increase $200 per TEU and $400 per FEU.
Pacific Direct Line will increase rates for New Zealand-Fiji trade on April 17. For cargo from New Zealand to Fiji, rates will increase $150 per TEU (dry and reefer) and $300 per FEU (dry and reefer).
Hapag-Lloyd will increase its rates for North Europe-Latin America trade on April 1. Cargo rates from North Europe to Latin America (excluding Mexico) will increase by $172 per TEU. The carrier will increase rates for the Far East trade effective April 1. Cargo rates from East Asia (excluding Japan) to all North Europe and Mediterranean destinations will increase $525 TEU westbound. For cargo from North Europe and the Mediterranean to East Asia (excluding Japan), rates will increase $150 per TEU and $250 per FEU. It also will increase rates for India-U.S. and Canada trade on April 1. For cargo, from India to all U.S. and Canada destinations, rates will increase $160 per TEU; $200 per FEU; $250 per 40-foot highcube container; and $250 per 40-foot reefer container.
On Friday, March 7, the Shanghai Container Freight Index was set at 934.39, down 46.67 points from Feb. 28. The SCFI components for cargo moving to the U.S. were $1,784 per FEU, down $68 to the West Coast; and $3,256 per FEU, down $70 to the East Coast.
SCFI Analysis. Richard Ward and Ricky Forman of Freight Investor (UK) provide weekly analysis and insight into the Shanghai Container Freight Index.
The SCFI saw another significant decline this week, with rates on the key NWE route falling a further $122 per TEU. Rates now stand at $988 TEU — below break-even for most carriers. With rates falling some 44 percent since the start of January, carriers have witnessed a substantial loss in revenue and say they will face for this year.
As we approach April, liners will no doubt hope for a proportion of the planned GRI to come into force; however, currently the forward market is pricing April with only a 10-percent premium to March, suggesting the increase will offer little respite. This reflects the market's views for further declines in the run up to April and the expectations that the GRI will not be sustained due to market fundamentals. For carriers, this represents a significant challenge, as the April increase is unlikely to ensure they return to profitability for the given month.
The declines reflect the views of carriers at the recent TPM Conference held in Long Beach, Calif., in which carrier panelists openly acknowledged that they cannot control rates and that they are in fact determined by "the market." As seen since Chinese New Year, carriers have an inability to control earnings and, therefore, secure returns for shareholders. Investors should demand that management gain a better control over cash flows, which can be achieved via available hedging tools.
The U.S. routes have not fared any better, with declines of $68 to the West Coast. As carriers attempt to limit capacity increases on the European trades, the cascading of larger vessels on the U.S. routes will result in continued and worsening rate volatility. This is even more evident on ECSA, where carriers continue to announce GRIs to battle the sever rate erosion seen over the past four months. In November, rates hit a high of $1,926, however, continued declines have resulted in a 60-percent drop to today's levels of $796 TEU, close to an all-time low. The developments seen on these routes, and the current predicament faced on the Asia-Europe trades, should act as a warning signal to carriers for the remainder of 2014.