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SHIPPING NEWS » CONTAINER

Shippers fear price wars will rock the boat

Container lines may miss their peak-season targets on Asia-US routes as orders for backpacks, sneakers and flatscreen televisions fall below expectation.
Saturday, 20.Aug.2011, 09:30 (GMT+3)

Container lines may miss their peak-season targets on Asia-US routes as orders for backpacks, sneakers and flatscreen televisions fall below expectations and ships sail below-capacity. Christmas shipping may be the same.

The build-up to the holiday and back-to-school shopping seasons, the busiest periods for US retailers, usually allows AP Moeller-Maersk, Neptune Orient Lines' APL unit and other container lines to introduce surcharges around mid-June. This year, levies were delayed until recently because of excess capacity. The lines still may get less than the $400 (Dh1,468) per 40-foot box they set as a guideline for shipments to US West Coast ports.
"What is agreed upon by a panel of container lines is one thing, but what will actually happen in the market is another," Maersk's chief executive officer Nils Smedegaard Andersen said. "It's too early to say whether the surcharges will be successful."

Container lines' earnings have slumped this year as fuel prices have jumped 29 per cent, while rates on Asia-West Coast routes have tumbled 21 per cent to $1,589 per box, based on the Shanghai Containerized Freight Index. Extra trans-Pacific capacity may prevent the lines from pocketing surcharges that usually make the second half their most profitable period.
Levy delay

"Container ships to the US West Coast are not filling up, which leaves shipping companies with few bargaining chips for imposing surcharges," said Dong Jinghua, general manager of Shenzhen Continents International Forwarding, which arranges about 300 container shipments a month.
Surcharges are likely to be "not much" this year as vessels are only 90 per cent full on Asia-West Coast routes, said JeeHeonSeok, an analyst at NH Investment and Securities in Seoul.

The slowdown has contributed to Neptune Orient, parent of southeast Asia's biggest container line, falling 50 per cent this year in Singapore trading, the worst performance in the benchmark Straits Times Index. Maersk has slumped 30 per cent in Copenhagen. China Cosco Holdings, operator of China's biggest container fleet, has tumbled 45 per cent in Hong Kong.
Neptune Orient dropped 2.7 per cent to close at S$1.09, the lowest price since April 2009, in Singapore. Hanjin Shipping Co. fell 0.6 per cent in Seoul and China Cosco advanced 4.1 per cent in Hong Kong.

US inventory levels

The Transpacific Stabilisation Agreement, a group of 15 container lines with limited anti-trust protection, originally advised introducing $400 surcharges on June 15. It later delayed the start to August 15. Mitsui OSK Lines, which isn't part of the group, delayed its levies to September 1.
Shipping lines are basing their optimism on low US inventory levels, which may force retailers to restock even without a big jump in spending. US retailers' inventory-to- sales ratio, excluding motor vehicles, remained at a seasonally adjusted 1.19 in June, the lowest since the Census Bureau started compiling the data in 1992.

An expanding global container-ship fleet may also hit rates. "Everything bad you can think of is happening for shipping lines," said NH Investment's Jee. "It's going to be next year before things start turning around."

Source: Bloomberg

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