Box lines wear big rate cuts

With the majority of contracts covering the coming 12 months now signed, container lines have emerged the losers after conceding some hefty discounts compared with last year.
Maersk Line chief executive Eivind Kolding described the rate reductions that ocean carriers have been forced to accept for transpacific eastbound cargo as “quite substantial”.
While not quantifying how much lines such as Maersk had dropped their prices, Mr Kolding indicated that reductions exceeded 10%. The percentage drop was in double digits, he told Lloyd’s List.
Transpacific carriers had been braced for a tough contract renewal season after a sharp drop in market rates in the early weeks of 2009.
The Transpacific Stabilization Agreement, of which Maersk is not a member, had been frantically urging lines to adhere to a schedule of minimum base freight rates in service contracts after failing to end a price war on the spot market.
Nevertheless, lines were fully prepared for considerably lower rates because of such weak cargo volumes.
Elsewhere, Maersk has been able to obtain some modest rate increases of US$100-US$200 per teu both eastbound and westbound in the Asia-Europe trades, with further restoration efforts scheduled for this summer, Mr Kolding said.
But these will not be enough to compensate for the rate collapse on this route earlier in the year, let alone the lower levels that carriers are now locked into on the Pacific for the coming year, he added.
And, the north-south trades have not yet bottomed out.
“There is still a long way to go to get rates up to a level where lines would just break even,” he said.
Maersk estimates that global containerised cargo volumes will be 7%-10% lower than in 2008, an unprecedented situation for a sector that has only ever experienced year-on-year growth until now.
“There is no doubt that the year ahead of us is going to be extremely difficult,” Mr Kolding said.
Further cost-saving initiatives include diverting Maersk’s US east coast-Asia TP3 service round southern Africa instead of an eastbound Suez Canal transit, while super slow steaming by reducing some ship speeds to 10 knots is also being planned.