Bloomberg News

Ship Lines Delay Asia-U.S. Rates Plan on Unpredictable Cargo

October 12, 2011

(Updates with closing share prices in sixth paragraph.)

Oct. 12 (Bloomberg) -- Container-shipping lines delayed announcing targets for next year’s rates on Asia-U.S. routes as they struggle to forecast volumes amid unsteady economic growth and an expanding global fleet.

“No one is able to predict even the near-term outlook,” Brian Conrad, executive administrator at the Transpacific Stabilization Agreement, a group of 15 container lines, said yesterday in Shenzhen, China. Publication of the TSA’s annual rates guidelines, which usually happens around this month, may be delayed until early next year, he said.

The delay reflects U.S. retailers’ unwillingness to commitment to orders for Asian-made toys, flat-screen TVs and sneakers amid a 9 percent jobless rate and stock-market fluctuations. An increase in the number of container vessels in service this year has also hindered shipping lines’ efforts to secure higher rates.

“It’s very, very difficult to look far ahead,” said Rolf Habben-Jansen, chief executive officer of Damco, the freight- forwarding arm of AP Moeller-Maersk A/S, the world’s largest container-shipping line. “The economic news is not consistent, and there is a lot of nervousness in the market.”

The container rates squeeze and concerns about the outlook has contributed to a Copenhagen, Denmark-based Maersk losing about 30 percent of its market value this year. China Shipping Container Lines Co. has fallen 60 percent in Hong Kong, while Evergreen Marine Corp. has tumbled 43 percent in Taipei.

China Shipping Container rose 5.4 percent to HK$1.37 today. Evergreen fell 1 percent to NT$15.65.

Lower Surcharges

Less-than-expected demand and excess capacity meant shipping lines were generally forced to levy lower peak-season surcharges this year than in 2010, Habben-Jansen said at the Journal of Commerce’s TPM Asia Conference. Maersk, China Cosco Holdings Co. and other TSA members delayed the introduction of suggested levies of $400 per forty-foot box to August from June.

The TSA, which has limited antitrust protection, publishes voluntary guidelines for annual rates negotiations each year, including targeted increases and peak-season surcharges. Contracts generally start about May.

Cargo Guess

By this time of year, the group can usually predict what shipping for Christmas and the Lunar New Year will be like, Conrad said. That’s not possible this year as many companies are making last-minute orders, he said.

“Even now, some of them are not sure how much they are going to ship,” he said. “It’s a real guess, which is new this year.”

The later ordering means that October volumes are “reasonably strong,” with shipments about the same as September, Habben-Jansen said. Customers are also more prepared to hold off on shipments as they are less concerned about finding space on ships, he said.

Sears Holdings Corp., the operator of more than 4,000 stories in the U.S. and Canada, expects international shipments for this year’s Christmas holidays to be in line with last year, said Richard Smith, its transportation vice president. The retailer may take advantage of the greater shipping flexibility to place more orders if needed, he said.

U.S. “demand is picking up as we are getting closer to the end of the year,” said Rodolphe Saade, executive officer at CMA CGM SA, the world’s third-largest container line. “Europe is down, but the U.S. is picking up.”

U.S. Consumers

Retail sales in the U.S. probably increased 0.7 percent in September, the fastest pace in six months, according to the median of 69 forecasts in a Bloomberg News survey ahead of Commerce Department figures on Oct. 14. Shops’ inventories in July were at the lowest level for that month since the department began compiling data in 1992. August figures are yet to be released.

Inbound shipments at U.S. container ports may rise 9.5 percent this month and 8 percent in November after shops delayed orders earlier in the year, according to the National Retail Federation. The Washington-based trade group was expecting a 12 percent increase for last month, the first gain this year, according to a Sept. 19 statement.

Still, the container-shipping industry will probably lose money this year because overcapacity will offset an expected 7 percent increase in global volumes, London-based Drewry Shipping Consultants Ltd. said Oct. 10.

The losses will force container lines to mothball ships, Saade said. Marseilles-based CMA CGM will park some vessels in early 2012, he said without giving more details. The global container-shipping fleet comprised 5,066 vessels at the start of September, up from 4,964 at the beginning of the year, according to data from shipbroker Clarkson Plc.

“Many carriers can’t afford to keep losing money the way they are,” Saade said. “Small players with no big ships will not be able to sustain this.”

--Jasmine Wang with assistance from Kyunghee Park in Singapore. Editors: Neil Denslow, Frank Longid

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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