China says no to zero rates

China says no to zero rates    The Chinese government has told Chinese ocean carriers not to offer zero rates on shipments at the expense of profitability, according to a report Friday by Bloomberg.
   Li Shaode, president of China Shipping (Group) Co., China’s second-biggest liner carrier, said from Beijing that the government made the declaration in the wake of widespread reports that carriers were offering such rates between Asia and Europe.
   Rates on that trade have bottomed out since the start of 2009, with consumer demand plummeting amidst overcapacity. American Shipper reported on the topic in its March issue (pages 38-42), and though it's unclear whether carriers were actually systematically offering zero rates, there’s no doubt rates have dropped dramatically, to the point that many in the industry are wondering whether all the lines operating will be intact by the end of the year.
   Zero rates, of course, don’t mean the shipment is free, but rather that the line is making no profit over and above surcharges like bunker and terminal handling fees. Since most lines claim they don’t recover 100 percent of their actual costs through those fees, the implication is that lines are losing serious money with these zero rates.
   Maersk Line, for instance, said last week that bunker surcharges represented the bulk of revenue from its container business in 2008, yet the line said only about 60 percent of actual fuel costs were recovered during the year.
   In announcing the company’s annual results for 2008, A.P. Moller – Maersk group Chief Executive Officer Nils S. Andersen said that it would require a “tough negotiation” to increase rates in this environment.
   “Our objective is to have a profitable business,” Andersen said when asked whether Maersk would give up on seeking better yield per container in exchange for securing volume. “We will focus on getting a rate which is in line with the market. We don’t prioritize volume over yield, but we’ve had to meet competition in terms of price in the market. We don’t intend to be priced out.”
   The insinuation was that the Danish line wasn’t going to let other carriers trying to expand market share do so without a fight. ' Eric Johnson