Drewry: Rates could cost lines $68 billion in ?09

Drewry: Rates could cost lines $68 billion in Æ09    A new report on ocean shipping rates from Drewry Shipping Consultants reflects just how desperate times are for carriers.
   The report, Drewry's Container Freight Rate Insight, suggests that slumping rates during 2008, and from November to January in particular, have significantly eaten away at the carriers' ability to generate revenue. Based on Drewry's calculations for total container volume in 2008, it means ocean carriers jointly could see nearly $70 billion in revenues sucked away by declining rates in the coming year.
   The rate decreases are significant on all trades exiting Asia, but are particularly steep between Asia and Europe.
   Container rates on shipments from Asia to the United States fell 12.1 percent between November and January (to $1,681), and 14.3 percent between January 2008 and January 2009. Rates from Asia to Europe dipped much more dramatically, falling 42.2 percent between November and January (to $1,232), and 68.7 percent between January 2008 and January 2009.
   For the year, rates from Hong Kong to the U.S. West Coast fell 15 percent for a 40-foot container (to $2,090), while to the U.S. East Coast, they fell 17 percent (to $3,340).
   'Eastbound transpacific freight rates to the U.S. have also come under market pressure,' the report said. 'Reductions of $300 per 40-foot container have been common in recent months and the trend is continuing downwards. Rates from Hong Kong to Los Angeles (reached) a record low of $1,350 per 40-foot container in mid-February.'
   Globally, rates fell an average of nearly 20 percent between November and January and 36 percent for the year.
   'Based on global container traffic of 152 million TEUs for 2008 (according to Drewry's latest Container Forecaster), that suggests there is as much as $68 billion in revenues that the container operators are now not going to get — and that shippers are going to save — if today's levels hold for the next 12 months,' the report said. 'Of course the real sums are far more complicated than that, but the calculation does give an impression of how desperate the liner industry's revenue shortfall has become.'
   It's not just spot rates where levels have declined. Contract rates, especially between Asia and Europe, where contracts are shorter in duration than on the transpacific, have dipped as well.
   'Contract rates on the Asia/Europe route for this year have been fixed uncomfortably close to the low level of prevailing spot rates,' the report said. 'The shipping lines' container services are being run with negative cash flows, for both spot and contract cargoes. This situation raises serious questions about the carriers' ability to continue to trade and the resulting risk of disruption of shippers' supply chains from Asia. Shippers will need to pay close attention to the risk and consequences of bankruptcies of carriers.'
   It's not just slumping demand and overcapacity that's driving carrier per TEU revenue down, Drewry said. A sharp fall in bunker surcharge levels at the end of the 2008 is responsible for half the drop in carriers' all-in rates between November and January.
   'There has emerged a new trend of pricing in lump sum freight rates from the Far East, under which the base rate and the bunker surcharge are no longer separated,' the report said. 'The dangers of this are obvious if oil prices start creeping up again — as many observers think they might. Operators could find they have given away their only chance to improve revenues this year.'
   The only trades to the United States to see rate increases during 2008 were the Indian Subcontinent-to-U.S. East Coast and Middle East to U.S. West Coast lanes. Rates between India and the U.S. East Coast climbed 20 percent (to $2,070) for a 20-foot container from January 2008 to January 2009, while rates from the Middle East to the U.S. West Coast rose 17 percent (to $2,890).