Container lines may miss their peak- season targets on Asia-U.S. routes as orders for backpacks, sneakers and flatscreen TVs fall below expectations and ships sail below-capacity. Christmas shipping may be the same.
The build-up to the holiday and back-to-school shopping seasons, the busiest periods for U.S. retailers, usually allows A.P. Moeller-Maersk A/S, Neptune Orient Lines Ltd.’s APL Ltd. unit and other container lines to introduce surcharges around mid-June. This year, levies were delayed to this week because of excess capacity. The lines still may get less than the $400 per forty-foot box they set as a guideline for shipments to U.S. West Coast ports.
“What is agreed upon by a panel of container lines is one thing, but what will actually happen in the market is another,” Maersk’s Chief Executive Officer Nils Smedegaard Andersen said yesterday. “It’s too early to say whether the surcharges will be successful.”
Container lines’ earnings have slumped this year as fuel prices have jumped 29 percent, while rates on Asia-West Coast routes have tumbled 21 percent to $1,589 per box, based on the Shanghai Containerized Freight Index. Extra trans-Pacific capacity may prevent the lines from pocketing surcharges that usually make the second half their most profitable period.
Surcharges ‘Not Much’
“Container ships to the U.S. West Coast are not filling up, which leaves shipping companies with few bargaining chips for imposing surcharges,” said Dong Jinghua, general manager of Shenzhen Continents International Forwarding Co., which arranges about 300 container shipments a month. “Most lines are taking a wait-and-see attitude because those that act first may risk losing customers.”
Surcharges are likely to be “not much” this year as vessels are only 90 percent full on Asia-West Coast routes, said Jee Heon Seok, an analyst at NH Investment & Securities Co. in Seoul. Shippers are usually struggling to find space at this time of year, he said.
The slowdown has contributed to Neptune Orient, parent of southeast Asia’s biggest container line, falling 50 percent this year in Singapore trading, the worst performance in the benchmark Straits Times Index. Maersk has slumped 30 percent in Copenhagen. China Cosco Holdings Co., operator of China’s biggest container fleet, has tumbled 45 percent in Hong Kong.
Neptune Orient dropped 2.7 percent to close at S$1.09, the lowest price since April 2009, in Singapore. Hanjin Shipping Co. fell 0.6 percent in Seoul and China Cosco advanced 4.1 percent in Hong Kong.
The Transpacific Stabilization Agreement, a group of 15 container lines with limited antitrust protection, originally advised introducing $400 surcharges on June 15. It later delayed the start to Aug. 15. Mitsui O.S.K. Lines Ltd., which isn’t part of the group, delayed its levies to Sept. 1.
Group members APL, Orient Overseas (International) Ltd., Hanjin Shipping Co., Evergreen Group and Yang Ming Marine Transport Corp. (2609) all said they would begin levying surcharges on Aug. 15 when contacted by Bloomberg News. They didn’t say how much they would charge.
“We are optimistic in the third quarter that we will realize some portion of benefits in the peak-season surcharge both in the trans-Pacific and Asia-Europe trades,” APL President Kenneth Glenn said on Aug. 12. “Trans-Pacific utilization is improving.”
‘Degree of Success’
Orient Overseas, Hong Kong’s biggest container line, also anticipates “some degree of success,” Chief Financial Officer Ken Cambie said earlier this month. “There’s an expectation of some capacity constraints in the peak season.”
Shipping lines are basing their optimism on low U.S. inventory levels, which may force retailers to restock even without a big jump in spending. U.S. retailers’ inventory-to- sales ratio, excluding motor vehicles, remained at a seasonally adjusted 1.19 in June, the lowest since the Census Bureau started compiling the data in 1992.
“Inventory levels in the U.S. are below historical levels for this time of the year,” APL’s Glenn said. Retailers won’t know what stocks they’ll need “until the buying season actually begins and then they will make their decisions,” he said.
Inbound container volumes at major U.S. retail ports may rise 10 percent from last year in September and 8 percent in October, according to the Washington-based National Retail Federation. Volumes declined 5 percent year-on-year in June and probably fell 5.7 percent in July, the group said in an Aug. 9 statement. It forecast a 1.6 percent decline for this month.
The drop in traffic reflected a surge in shipments a year earlier caused by concerns about a shortage of capacity, rather than an economic slowdown, the group said.
“Container-shipping demand is expected to see some increase in line with the peak season,” Seoul-based Hanjin Shipping said in an Aug. 12 statement. “Profitability is also expected to improve as shipping lines are trying to restore freight rates and reduce costs.”
Still, U.S. retailers may hesitate to build up inventories as employment above 9 percent and falling home prices damp confidence. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment last month slumped to the lowest since May 1980. U.S. back-to-school spending this year may rise 3 percent, decelerating from 5 percent growth in 2010, according to the International Council of Shopping Centers.
Expanding Global Fleet
An expanding global container-ship fleet may also hit rates. Copenhagen-based Maersk said yesterday that worldwide capacity growth this year will likely surpass an 8 percent increase in traffic. The company reported a 3 percent drop in average first-half rates, even as volumes rose 6 percent.
“I don’t think shipping companies can impose surcharges this year because supply is exceeding demand,” said Chen Xiang Cheng, manager of Shanghai Minmetals Golden Hope International Transportation Co., which organizes more than 4,000 container shipments a month with lines including Maersk.
The Danish company expects to report a decline in full-year profit, it said yesterday. Earnings at its container unit will be “modest” compared with a prediction in May for a “satisfactory” profit, it said.
“It’s generally difficult to get freight-rate increases through in this market because there always seems to be some container line ready to under-bid you,” Andersen said.
Neptune Orient may post a full-year loss if conditions don’t improve, Chief Executive Officer Ron Widdows said on Aug. 12. The Singapore-based company slumped to a second straight quarterly loss in the three months ended July 1 because of higher fuel costs and lower rates. The price of 380 Centistoke marine bunker fuel, used by ships, was at $655.50 per metric ton yesterday in Singapore, up from $507.50 at the end of 2010.
“Everything bad you can think of is happening for shipping lines,” said NH Investment’s Jee. “It’s going to be next year before things start turning around.”
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