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April brings rate hikes, new alliances, contract finalization

Hapag-Lloyd is one of several carriers planning April 1 rate hikes on the major trades.

Carriers are planning a raft of rate increases across the major east-west trades on April 1, and the attempt to raise prices will coincide with the finalising of the beneficial cargo owner (BCO) contracting season onAsia-Europeand trans-Pacific and the roll out of the new alliances.

The rate hikes, new alliances, and closing BCO service contracts are all linked the general rate increases (GRIs) could affect contract levels and the capacity on oversupplied trades as the alliances repositioning vessels might limit the ability of the rate increases to stick.

Market Data Hub reveal that spot market rates on Asia-North Europe are currently more than 300 percent higher than at the same point in 2016. Rates on the Asia-US West Coast are up 72 percent, and the all-water US East Coast spot rates are almost 60 percent higher compared with this time last year.

Container lines are intent on preserving these rate levels and have informed the market of impending rate hikes, mostly from April 1, although some GRIs will be levied from mid-April on the trans-Pacific.

According to data in SeaIntels Sunday Spotlight on the trans-Pacific Hamburg Sd is planning the highest GRI at $1,000 per 40-foot-equivalent unit (FEU), with Hapag-Lloyd at $700, Maersk Line at $600, and Westwood Shipping at $200 per FEU. Hapag-Lloyd will also be raising rates by another $700 on April 20.

However, fellow maritime analyst Drewry said although reasonably buoyant headhaul volumes during January caused spot market rates to rise, the rates have fallen steadily since the beginning of the year, which could signal that turbulent waters lie ahead. Spot rates on Drewrys weekly Hong Kong to Los Angeles benchmark started 2017 near $2,500 per FEU, and there was speculation that average BCO contract rates from May 1 could be $1,500, just short of where they stood in 2015.

If last year is anything to go by, then by mid-April spot rates of $1,250 could be in the market, and the consequence of that is that BCO prices for the new term would stand little chance of being brought over the $1,000 threshold, at least for the major importers, Drewry wrote in its Container Insight Weekly.

On April 1, the new Ocean Alliance.THE Alliance, and the 2M Allianceplus-Hyundai Merchant Marine will begin operating, and Drewry said this could cause problems even beyond the disruption expected as the vessel-sharing agreements are rolled out.

It is unfortunate timing for carriers that the alliance re-shuffle coincides with weaker demand. The extra capacity and new entrants will add downward pressure on spot rates and make obtaining higher BCO contracts in an already over-crowded market that much more difficult, the analyst predicted.

On Asia-North Europe from April 1, Hapag-Lloyd will be charging $1,200 per 20-foot-equivalent unit (TEU), APL $1,100, and Maersk Line $1,050 from Shanghai to Rotterdam only. On Asia-Mediterranean from April 1, freight-all-kinds rates from Hapag-Lloyd will be $1,750 per TEU, APL $1,100 per TEU, and CMA CGM $1,025 per TEU and $1,500 per TEU to Morocco only.

Most BCO contracts on the Asia-Europe and Mediterranean trades will have been settled by the end of March, and data from rate management platforms and anecdotal evidence from shippers indicate that service contracts are higher than those achieved in 2016.

Evidence of the destructive impact of poor freight rates on carriers can be seen in the revenue and volume levels reported by many of global top container lines in 2016 and compiled by SeaIntel. In 2016, ZIMs revenue declined by 15.1 percent, MOLs fell 14.8 percent, Hapag-Lloyd's revenue fell 12.9 percent, NYKs dropped 13.3 percent, and Maersk Line was down 12.7 percent. Only CMA CGM achieved revenue growth (2.7 percent), although this result includes APLs contribution after it was taken over in June 2016.

All the carriers listed above reported increases in their global container volumes carried during 2016.