Friday, April 8, 2016

MORE BAD NEWS FOR CONTAINER LINES

Freight Investor Services
LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES

Falls across the board point to 'horrible' 2016

Rates on the Asia-North Europe trade declined $48 to $291 TEU this week, a fall of 14.2% week-on-week, according to the latest SCFI figures. As expected, carriers have begun announcing plans to increase rates from May 1, although interestingly there is already a differing approach between lines.

Hapag-Lloyd announced its intention of increasing rates from the beginning of May, however this will be done under the new system as agreed with the European Commission. As such, rather than announcing a GRI the German line has informed customers of its intended FAK rate as of May 1. Hapag-Lloyd will set its rates at $925 per TEU, subject to applicable surcharges.

Meanwhile UASC has continued the previous approach with a traditional GRI of $800 per TEU, again effective May 1. Time will tell as to how the remaining carriers will implement their latest increases and what impact this has on the chances of the increases being a success.

Elsewhere Drewry Maritime Equity Research downgraded A.P Moeller-Maersk this week to ‘unattractive’, saying it expects the company’s shipping line to navigate through a very challenging two year period, where a return to profitability is doubtful.

This was a view reflected in Alphaliner’s most recent report, which highlighted the erosion in industry operating margins through 2015. Over the course of 12 months core EBIT figures declined from +5.2% in Q1-2015 to -5.9% in the final three months of the year, the worst quarterly performance since 2012.

It’s clear to see why when considering the broader market conditions. Declines on the comprehensive SCFI index are well reported and we have seen falls of 51% since the start of 2015. Meanwhile Xeneta’s technology platform allows users to differentiate between both short and long term contracts, allowing users to analyse declines across various contract durations.

By using Xeneta’s platform it is possible to analyse the developments in contract rates (greater than three months) across the same routes that are covered by the SCFI and calculate an approximate contracted index (see chart below).
Source: Shanghai Shipping Exchange, Xeneta
Here we can see that from the start of 2015 such an index has dropped 30.5%, whilst on the key Asia-North Europe trade the average rate for contracts greater than three months in duration have fallen by 44%.

Equally on trades outside of the SCFI, such as the North American East Coast to South American East Coast route, declines have been substantial. Here contracted rates according to Xeneta are down 21% year-on-year.

Drewry stated in its latest report that the container shipping industry is staring at a potentially horrible 2016, with losses perhaps reaching $6bn. With contracted and spot rates seemingly falling across the board and not restricted to the East-West trades it’s hard to argue otherwise.