Liner shipping companies engaged in the Europe-Asia trades are pleasantly surprised by the unexpected strength of their business right now, although they would still like to see higher freight rates.
Only a few months ago, as the gulf war loomed and recession was on everyone's lips, many operators were anticipating overall cargo growth this year of around 3 percent to 4 percent. Instead, members of the Far Eastern Freight Conference, a group of lines that collectively set rates in the trade, are experiencing double-digit volume growth.During the early weeks of the year, usually a relatively flat period, business has been expanding at an annualized rate of around 12 percent, according to Patrick Giles, conference secretary. Ships carrying Asian exports to Europe are full, with a shortage of capacity apparent, while on the eastbound leg vessels are carrying as much cargo in terms of weight as they can hold.
Earlier this month, P&O Containers Ltd. announced that its vessel Peninsular Bay arrived in the U.K. from the Far East with a record load of 3,807 20-foot containers, thanks to the continuing growth of European imports
Lines that set their rates independently of the FEFC also are are enjoying good business conditions. Hans Steiger, chief executive officer of Swiss-headquartered Norasia Lines Ltd., which operates in a number of trades between Europe and Asia, disclosed that the line is turning away cargo in the westbound direction because of the strength of the market.
"It's a brand-new feeling," said Mr. Steiger.
The FEFC, whose members account for around half the container traffic moved on the Europe-Asia trades, will introduce a rate increase of $200 a 20-foot container for both eastbound and westbound sailings on April 1. This follows a similar increase last October. Independent lines such as Norasia intend to raise their freight rates at the same time.
As far as Mr. Steiger is concerned, "there's no sense swimming against the tide."
He attributes the upturn in business to the new markets opening up in Eastern Europe, where consumers "are hungry for television sets, hi-fi equipment" and such like.
Other lines say demand in Western Europe is better than expected, and they are confident that the healthy supply and demand balance on the westbound leg will deter any undercutting of the new rates. Shippers who are not prepared to pay the full price are likely to be turned away, said Mr. Giles.
The eastbound trade is not in such a good position for the lines, however. Although ships are mostly full, they are carrying less valuable cargoes and a higher volume of lower value commodities such as agricultural produce.
Even with full ships and higher freight rates, returns for ship lines will remain inadequate, according to Mr. Giles. The April 1 rise will increase freight rates to a level where "they just about cover costs" for efficient low-cost operators, Mr. Giles reckons.
"There's no fat in it at all," he said. Freight rates are still lower in real terms, meaning after adjustment for inflation, than they were 10 years ago, a legacy of too many lines going for volume rather than price over the past decade.
The Europe-Asia trades will experience some major changes this year as old partnerships are dissolved and new alliances formed.
On March 1, the Trio consortium of three European and two Japanese lines was formally disbanded, and two new services were inaugurated. The one attracting the most attention is the joint venture between P&O Containers Ltd. and Maersk Line. The ScanDutch consortium will also break up at the end of the year, and new arrangements will be introduced.
The realignments have not reduced ship capacity but have allowed the participants to review cost structure, service schedules and ports of call, and to consider further sharing arrangements.
While these new services may increase competition in the Europe-Asia trades, Mr. Steiger thinks they also will instill more discipline into the marketplace.