News / Are container shipping lines switching to a two-stage rate increase strategy?

© Khunaspix Dreamstime.

Container shipping lines on the Asia-Europe trade are attempting to push through another general rate increase in late September after failing to get more than a third of the general rate increases (GRIs) introduced this week.

CMA CGM said yesterday that it would implement an “additional rate restoration” of $500 per teu between Asia, North Europe and the Mediterranean effective 20 September, and The Loadstar has heard that China Shipping has proposed an extra GRI from the same date for $525 per teu.

APL advised customers on 14 August of a further $500 per teu GRI from 20 September, on top of the $950 it was proposing from 1 September.

After the implementation of an average $1,000 per teu GRI this week, spot rates on the Shanghai Containerised Freight Index (SCFI) moved up by only $172 per teu for North Europe and by $168 per teu for Mediterranean ports.

[Due to the extended Victory celebrations in Beijing today and tomorrow, the publication of this week’s SCFI was brought forward – there may still be room for a further upward swing, though recent history suggests this is unlikely.]

This followed the previous week’s pre-GRI hop of $122 and $248 respectively and takes the SCFI reading to $763 for North Europe and $865 for the Mediterranean – somewhat below the level that the carriers need if they are to hold onto the profits extracted from the first six months of trading.

Spot rates have become more important to carriers this year because they have been obliged to increasingly tap this market to fill their ships as demand has weakened, just as they were hiking capacity by the deployment of bigger ships.

Although carriers refuse to divulge the percentage of spot cargo compared to paying contract cargo, one major container line source told The Loadstar recently that on some voyages to North Europe this summer spot cargo had been “over 50%”, compared with around 25% a year ago.

And shippers with paying annual contract cargo at higher rates have demanded carriers concede temporary reductions in prices to reflect the market, and some have even torn up agreements handed their business to another carrier with a cheaper offer.

In the past Asia-Europe carriers were protected from the worst volatility of spot rates by a contract cargo cushion, but the influence of the freight rate indexes is growing and can no longer be dismissed as “a casino” by container lines.

The impact on the financial result from a sustained period of sub-economic spot rates can be seen from Hapag-Lloyd’s second quarter report which shows a year-on-year $220 per teu decline in its average Asia-Europe rate and would have plunged the German carrier deep into the red if not for the windfall of a 50% drop in fuel prices.

It probably prompted Hapag-Lloyd chief executive Rolf Jabben Hansen to say that it aimed to be “more responsible in the spot market” in the future – although with the pressure to fill a half-empty ship, this could be easier said than done.

Meanwhile, after the relative failure of 1 July, 1 August, and now probably 1 September GRIs, it appears that carriers are trying another tactic by proposing additional smaller increases for implementation mid-month.