Hapag-Lloyd was first carrier to announce the westbound May rate increases even as April 1 GRIs struggle to lift a market weighed down by overcapacity and weak demand.
Effective May 8, the German carrier aims to raise rates on the Asia-North Europe and Asia-Mediterranean trades by $525 per 20-foot container and $1,050 per 40-foot container.
“The market outlook remains quite glum,” was SeaIntel’s take in its weekend report. “Carriers generally managed to pull 2013 results above those of 2012, but overcapacity, freight rate volatility and service disruptions will remain the driving forces of 2014,” the market intelligence company said.
Another 30 container ships of between 13,300 and 19,000 TEUs will be delivered this year as carriers try to reduce unit costs on the Asia-Europe trade. While GRIs achieving 75 percent of the intended increase are regarded as acceptable by the carriers, industry observers say even that will be difficult to sustain with the glut of surplus capacity coming online.
“At the moment the rates appear to be sticking a bit above the 75 percent level, but there is a lot of pessimism about because of the capacity,” an Asia-Europe trade market researcher told the JOC.
In a recent report, Drewry said the industry down cycle was being exacerbated by the constant delivery of new ships, and cascading was hurting the balance of other trade lanes. The report said a worsening supply-demand imbalance, combined with the appetite to protect market share, represented a toxic mix for profitability.
The Shanghai Container Freight Index (SCFI) has reported the average freight rate from 2012 to 2013 declined from $1,248 to $1,081 per 20-foot container. While the rates have improved on Asia-North Europe in the last couple of weeks, this is expected to be short-lived, the market researcher said.
Full-year results reporting season for the container lines is now over, and the red-stained balance sheets show an industry struggling to improve profitability. Thirteen of the Top 20 carriers made losses last year, according to SeaIntel.
When broken down into P&L per 20-foot container, the numbers are uninspiring. In 2013, CSAV lost $195 per transported container and Zim lost $151 per transported box. Even the carriers that managed to transport boxes at a profit barely made it into positive territory, with “K” Line earning $9 per container and OOCL $11. The top scorer in 2013 was Maersk Line, with earnings of $89 per transported 20-foot container.
However, not everyone is gloomy. Citi transport analyst Michael Beer said in a report that the U.S. economy was slowly improving and Asia was coming back, which is “reason to be optimistic.”
“With demand growth in question and pricing power under pressure through at least 1H14, we believe many operators will need to focus on capacity management and utilization rather than growth for the sake of growth this year,” Beer said.
“We are already seeing encouraging signs and believe that profitability may trump market share for the first time in a very long while. That said, orderbooks remain healthy and delivery/completion schedules may be somewhat fixed, leading to weakened utilization levels this year.”
China’s exports have shown some growth, and Citi found the U.S. housing market was picking up steam, lending further support to the demand for goods from Asia, and particularly South China, where furniture is among the largest volume drivers.