Asia/Europe carriers face cost, port capacity pressures

Asia/Europe carriers face cost, port capacity pressures Shipping lines of the Far Eastern Freight Conference said Friday they will face cost increases beyond their control in 2005, and that tight ship capacity and port congestion will continue on the Asia/Europe route.
   “There is quite a challenge for the lines on the cost side,” said Ad Adrion, chairman of the Far Eastern Freight Conference and chief executive officer of Hapag-Lloyd Container Line, at a press conference in London Friday.
   He cited further expected increases in ship charter costs, record oil prices, additional feeder and trucking costs caused by port congestion in Europe and Asia, and a rising proportion of empty containers needing to be repositioned to Asia.
   “We need additional rate increases to cover costs,” he said. The Far Eastern Freight Conference, which said westbound rates from Asia to Europe increased during 2004, now plans a series of further rate hikes next year for Jan. 1, April 1, July 1 and Oct. 1.
   Given the widespread cost increases, Adrion said it was “questionable” whether carriers’ profits would improve in 2005. The carriers are not complaining loud, though, as 2004 was a very profitable year. Hapag-Lloyd said it made good profits on the Asia/Europe in 2004.
   Shippers' reactions to another round of price rises for shipping on the Asia/Europe route is expected to vary.
   “Shippers are more and more resistant to accept rate increases,” Adrion admitted.
   However, he also noted eastbound rates from Europe to Asia “are close to the lowest rate ever” and said higher westbound rates from Asia “are subsidizing eastbound rates.”
   “Customers in general understand that costs are going up,” said Chris Bourne, managing director of MOL (Europe). He accepted that smaller forwarders would likely question the rate increases, but insisted many shippers will understand the cost reasons for them.
   During the first three quarters of 2004, westbound Asia/Europe ships sailed with load factors of more than 94 percent. The Far Eastern Freight Conference predicts another year of high ship utilization for 2005, with westbound cargo volumes predicted to expand 17 percent to 6.1 million TEUs and vessel capacity expected to increase 15 percent.
   However, the Asia/Europe conference carriers expressed growing worries over terminal capacity shortages, which causes increasingly frequent congestion delays, particularly in Europe.
   “Terminals are all full,” Adrion said. “In Europe, the situation is not improving — it’s worsening.” “There is barely any new capacity coming on stream in 2005.”
   The Asia/Europe carriers expect China to account for a higher proportion of Asia’s outbound container trade to Europe in 2005, partly due to the lifting of textile quotas on Jan. 1.
   “The potential for China to manufacture clothes is enormous,” said Rod Riseborough, chief executive office of the Far Eastern Freight Conference.
   In 2004, mainland China and Hong Kong together accounted for more than 50 percent of Asian exports to Europe.