Carriers cling to hopes of peak-season rate rises

Carriers cling to hopes of peak-season rate rises

Interim result season is in full swing, and the financial reports reveal carriers in the container-shipping industry searching for a silver lining.

Growing trade volumes on the major east-west routes have raised expectations of a solid peak season, and some lines are hoping that rates will rise along with demand.

“Although the business environment surrounding the container-shipping business is expected to remain severe, we will strive to increase the freight rate by catching the seasonal increase in cargo volume which is expected over the summer,” NYK Line said in a statement.

Of the three major Japanese carriers, only NYK managed to stay in the black, reporting a net profit for the three months ended June 30 of $99.83 million. “K” Line saw net profit falling 38 percent for its fiscal first quarter to $42 million, down from $68 million last year, and Mitsui O.S.K. Lines was down 33 percent, with net profit falling from $125 million to $84 million for the fiscal first quarter.

Hanjin Shipping was another carrier hoping that a peak season will allow the line to push rates up to profitable levels. The carrier said it expected an increase in both volume and rates during the peak season.

“Profit improvement is expected as additional rate restorations will take place,” Hanjin announced.

Any improvement will be welcome as the Korean carrier reels from a net second-quarter loss of $194 million, although its container division managed to post an operating profit of $36 million as it trimmed unprofitable routes, saved on bunkers, and kept operating costs down.

Market analysts believe a solid peak season from Asia to both Europe and North America will indeed lead to higher ocean container freight rates in the third quarter, but warned that the gains are likely to be temporary.

China’s recent export figures have been better than expected as the economic recovery of the U.S. and Europe continues to drive higher consumer spending. Manufacturing output in mainland China is up, and ports and shipping lines are reporting impressive gains in container volume. Year-to-date through May, Asia-to-Europe container volumes are up 8 percent, according to Container Trades Statistics, versus virtually no growth during the same period in 2013.

Asia-to-North America volumes are up 4.7 percent year-to-date through June, versus only 1.5 percent growth in the same period in 2013, according to PIERS, the data division of JOC Group Inc.

The pick of the lines for results so far has been Hong Kong-listed OOCL. With an impressive operational performance in the second quarter, the carrier felt no need to publicly pin its hopes on freight rate increases during the peak season.

Director of trades Stephen Ng said it wasn’t clear whether the volume increase on the trans-Pacific of 11.2 percent was a result of early shipments to avoid potential industrial action during the dock worker labor negotiations in the U.S.. “Therefore, it would be difficult to forecast if the peak season would be strong and what change we will see for the year as a whole,” he said.

Shipping lines are focusing intense efforts on keeping their costs down by slow steaming, trimming unprofitable routes, and scrapping older tonnage. But cost savings cannot lift carriers without help from freight rates, MOL president Koichi Muto advised in the line’s annual report.

He said while reductions in unit costs were quantifiable measures that had visible effects, “[r]egardless of how strenuously costs are reduced, however, there will be little improvement in earnings if more of the savings are lost to falling freight rates.”

Contact Greg Knowler at gknowler@joc.com and follow him on Twitter: @greg_knowler.