MORE BAD NEWS ON CONTAINER RATES

Freight Investor Services LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES

More of the same - but could there be losers? Despite reportedly strong utilisations on the main Asia-Europe trade and a planned rate increase of around $200-250 due May 15th, rates have declined this week by $30 to $606 per teu. The decline will be a blow to carriers hoping to follow on from the relative success of the May 1st GRI. Apart from the odd spike in rates due to implemented GRI’s, rates have remained low by historic standards following the collapse in oil prices seen over the past few years. The resulting decline has seen the spread between rates on the fronthaul and backhaul trades narrow considerably. In fact in some instances the traditionally “cheap” backhaul trade has been more expensive than the fronthaul. With fuel oil prices increasing since the start of 2016, carriers will be hoping that any increases they can implement will stick and therefore at least partially offset their rising costs.

Source: Bloomberg, Xeneta

Elsewhere the on-going saga regarding ocean carrier alliances has taken another, albeit anticipated twist. The somewhat unoriginally named “The Alliance” will see Hanjin, Hapag-Lloyd, K Line, MOL, NYK and Yang Ming enter into a new alliance covering the East-West trades. The agreement will be in place for five years, starting April 2017, and can be seen as a direct move to combat the recently announced Ocean Alliance. Worryingly for the Korean line HMM, at present it seems like it’s been dropped by its fellow carriers and excluded from The Alliance. Despite HMM releasing a statement suggesting that it will be able to enter into the agreement once its business has been “normalised”, it must be a cause for concern. An inability to join the alliance could further exacerbate its already precarious position. With no ultra-large vessels on order and a market whereby consolidation is seen as both inevitable and a necessity, the alliance members surely must consider leaving HMM out in the cold and potentially therefore speeding up market consolidation. The news that HMM is currently not part of the newly formed alliance has seen its share price drop nearly 10% overnight to KRW 11,500.