Shippers seek 16% rate rise on Asia to US route

Container shipping companies including the industry leader Maersk Line are seeking spot freight rate increases of about 16 per cent on Asia to North America routes, aiming to set a benchmark for upcoming negotiations on key annual price contracts.

An industry group that includes the unit of AP Moeller Maersk and China Cosco's Cosco Container Lines among its members has recommended general rate rises of US$400 per forty-foot equivalent unit (FEU) to the US west coast, effective from April 1.

The 15-member Transpacific Stabilisation Agreement (TSA) said in a statement it had also recommended a $600 increase per FEU to all other destinations. Whether the shipping firms, who have been hit hard by overcapacity, are able to successfully implement the spot rate hikes and base their annual contract talks on that price will have a significant bearing on their profitability for the year.

Up to 70 per cent of Asia-US container trade is governed by annual contracts.

"It's positive news for the liners," Moses Ma, an analyst at ICBC International, said of the TSA announcement, adding that some shipping companies have traditionally raised rates after the Chinese New Year holiday, which runs from February 10 to 15 in the mainland this year. Talks on the annual contracts are expected to intensify in the coming weeks and the contracts are expected to take effect around May 1.

As of Friday, rates tracked by the Shanghai Shipping Exchange were $2,475 per FEU for shipment to the US west coast from Shanghai. International container ship operators have already initiated several rounds of wholly or partially successful spot rate hikes as the industry has slowly recovered from the global economic slowdown of the past few years.

Not everyone thinks the latest hikes are a done deal.

Shipping companies may not be able to implement these rate hikes in full as the current Asia-US freight rates are already about 38 per cent higher than those at the same period last year, said Geoffrey Chang, an analyst at Bocom International.

And oversupply remains a concern. Container ship capacity is expected to grow 9 per cent this year, exceeding projected demand growth of 3 to 6 per cent, according to the industry consultant Alphaliner.

"Liners are desperately looking for a rate hike but the supply and demand situation is still unfavourable," said Sunny Ho, the executive director of the Hong Kong Shippers Council, a group representing manufacturers and traders.

"At the end of the day it would very much depend on negotiations," he said, referring to the contract prices.

* Reuters