As transoceanic container carriers begin to recover from the shock caused by the global economic crisis, many deep-sea container lines announced in March that they would raise their cargo rates on the key routes, with effect from April. Experts, however, say that the objective conditions for a rise in ocean cargo rates are nonexistent

Cargo Rates Are at Rock Bottom. The causes of the decline in the container transport business are the global recession, falling production of consumer goods, and weak consumer buying. According to the forecast of DP World, one of the largest marine terminal operators in the world, the 2009 volume of container transportation will amount to 405 million TEUs, down from 540 million TEUs in 2008. Data from DP World also reveal that container lines have laid up 25% of their fleet and are curtailing their investment programmes.

The sinking volumes of container operations have dragged cargo rates down. According to Lloyd’s List, in January, in the key Asia- Europe direction, the rate was $350 to $400 per TEU, including BAF (Bunker Adjustment Factor) and CAF (Currency Adjustment Factor) surcharges. However, it turns out that in fact the rates have risen by $50 per TEU at most. In some cases, in transportation from China to Europe, the rate could drop to $200 per TEU. Eighteen months ago, the rate was $1,400 per TEU.

Sunny Ho, Executive Director of the Hong Kong Shippers’ Council, told a press conference: «We knew of cases when shipping companies agreed to transport containers for zero rate, provided the exporter would pay bunker and terminal charges». Towards spring of this year, carriers lost patience with the low rates, and rose en masse to tell the market about their Rate

Opines that rate raising is declared for effect only. There are no grounds at present for lifting up tariffs in effect – the market’s cargo base has not expanded

Restoration Programmes. Maersk Line Limited., one of the biggest shipping companies around, announced higher rates in practically all directions. In particular, as from April 1 tariffs rose by $250-$300 per TEU for transportation from the Far East to Europe and the Mediterranean countries, and by $100 per TEU for conveyance from Europe to the Far East.

The higher rates also applied to transportations from Europe and the Mediterranean area to the Middle East and South Asia. Rates in these directions increased by $100 per 20-foot container and by $200 for a 40-foot one.

The German container line Hamburg Sud raised its rates as from April 10 for transatlantic services – by $160 per TEU and by $200 per FEU. It said in an official statement: «Cargo rates for transatlantic routes have dropped so low that they no longer cover expenses.

Another major German container line, Hapag-Lloyd, has set new rates (effective from April 1) for container delivery from the Far East to Europe: $1,000 per 20-foot container, and $2,000 for a 40-foot one. The company says the next rise in rates is scheduled to occur this year.

CMA CGM, the French container transportation and shipping company, on April 3 raised rates by $300 per TEU for the delivery of containers from India to Europe and the Mediterranean area.

The world’s ocean container lines have decided to bring order to the sea transport services market

405 million TEUs will amount volume of container transportation in the 2009, down from 540 million TEUs in 2008

As from May 1, the company plans to raise tariffs by $150/TEU and $250/FEU for the delivery of containers from the Mediterranean area to the eastern coast of the United States. Hanjin Shipping, a large South Korean company operating cargo vessels of all types all over the world, is not lagging behind its European competitors. As from April 1, it raised rates by $300/TEU and $600/FEU on the Far East-Europe routes. Tariffs for the transportation of containers from India and the Far East to Europe went up by $200 and $400 respectively. In the opposite direction – from Europe to Asia – the rise was $200/TEU and $400/FEU.

Global container transportation company APL, which belongs to the Singapore-based Neptune Orient Lines, raised tariffs for services in the western direction (from the Far East to Europe) by $250, effective from April 1, and by $100 to $175 for services in the opposite direction.

Chaotic Rate-setting. Valery Sobolev, Logistics Manager with international cargo transportation company Limco Logistics, notes that the simultaneous raising of rates by the larger shipping companies does not mean that the market has more cargo for conveyance. As he sees it, it is just that shipping companies have decided to eliminate the chaos in tariff-setting that rocked the market after the collapse of the Far Eastern Freight Conference (FEFC) more than six months ago. At that Conference, rates were agreed upon by ship owners in order to avoid dumping and unfair competition.

With the onset of recession, however, ship owners realized that they would now have to jockey for business, Sobolev notes. «As a result», – he says, – «rates began to be changed in a disorganized manner, spontaneously, and not every three months in an orderly way. Each shipping company began to impose its own BAF (bunker) surcharges and CAF (currency) surcharges. Forwarders were confused upon receiving differing rates from individual shipping companies, and found it hard to determine which shipping company was offering the best terms and conditions. With shipping companies sending them their different rates and surcharges on a monthly basis, the forwarders had to spend an enormous amount of time to calculate how much it would cost to convey a consignment from point A to point B. This state of affairs brought benefit to neither shipping company nor forwarder.»

That uncoordinated tariff policy led to sharp fluctuations in rates, Sobolev of Limco Logistics says. He elaborates: «At the end of the month, the rate of one shipping company or another would sky-rocket. If, say, a container failed to be placed on board a vessel on time, a week later it would be sent under a different rate, with different BAF and CAF surcharges. Thus, scandals erupted, entailing litigations if large consignments were involved. These disputes made the market nervous, compelling ship owners to increase their staff at port agencies, who could no longer cope with the huge amount of laborious calculations. Previously, rate calculation could be done at the beginning of each quarter, and during the quarter the calculations needed little correction, if any, depending on the client, and on the volume and type of the cargo. Now, because of the chaotic rate-setting, well-regulated quarterly work on rates has ceased».

No Reason to Jack up Rates. In the end, when everything got mixed up, it was decided to raise rates in a coordinated way. A return to the principles of the international ocean shipping conference system, however, did not happen, says Valery Sobolev of Limco Logistics. The market participants had simply resolved to streamline the operational process and cut costs.

Alexei Murashov, head of ocean transportations at Sekom Logistics (Russian forwarding company)

Alexei Murashov, head of ocean transportations at Sekom Logistics (Russian forwarding company), opines that rate raising is declared for effect only. There are no grounds at present for lifting up tariffs in effect – the market’s cargo base has not expanded. «For key clients, ocean lines will retain their former rates. A nominal increase is intended for chance clients with small cargo consignments», – Murashov notes.

Valery Sobolev of Limco Logistics says: «The service contracts that ocean lines sign with large consignors constitute a commercial secret, and it is practically impossible to find out whether they have to pay higher rates. There has been a rise in our April rates for our clients. However, we always make it clear to them that should the rise prove unbearable to the market, we will surely lower it».

As matters stand, if we are to attract new clients and keep our present ones, we must offer them – in addition to quality and regular service, and also extra intermodal facilities – attractive tariffs

Stanislav Vartanyan Group’s Corporate Communications Director

Higher Rates Will Not Help Transsib. «FESCO Transport Group is not planning any rise in rates for ocean transportation of containers», – the Group’s Corporate Communications Director Stanislav Vartanyan told Deliver journal. «The short sea shipping market where we work is far more severely fragmented than the deep sea market, where some big players pursue a relatively coordinated tariff policy. As matters stand, if we are to attract new clients and keep our present ones, we must offer them – in addition to quality and regular service, and also extra intermodal facilities – attractive tariffs».

«Whatever the motives of the ocean lines in organizing the Rate Restoration Programmes», – Vartanyan adds, – «these programmes play a rather positive role for many Russian players active on the rail container transport market. For we now see a diminishing gap in tariffs between deep sea routes and the Trans-Siberian Railway (or Transsib) route. This gap, however, is still too big for cargo owners to return to Transsib after they left it when ocean route tariffs fell».

Deliver journal asked Russia’s Far Eastern Transport Group to comment on the possibility of Transsib regaining its clients. They said that Transsib’s problem is not only the big gap between rail and sea tariffs. «It is also important to provide good conditions for rail transit», – said Anna Manoshina, PR Manager of Far Eastern Transport Group. «What counts is the convenience and quality of rail service, and also on-the-dot delivery. Besides, ocean lines inform their clients in advance of any changes in tariffs and routes. We lack such predictability».
By Denis Viksne