Container lines may have learnt their lesson after losing at least $6 billion last year in price wars.
Average rates from China have jumped 36 percent this year, the fastest increase since the China Containerized Freight Index was established in 1998, according to HSBC Holdings Plc, as lines focus on earnings rather than market share. That change has caused companies including Maersk Line, CMA CGM SA and Mediterranean Shipping Co., the world’s three biggest, to slow ships and pool vessels with rivals to pare overcapacity.
“We have to stop trying to outgrow each other,” Soeren Skou, chief executive officer of Maersk Line, said in Singapore last month. “Our focus for this year and in the coming years will be on restoring profitability.” The A.P. Moeller-Maersk A/S unit, which has forecast a second straight annual loss, plans to cut Asia-Europe capacity 9 percent this year.
The new-found cooperation and capacity restraint means average global container rates will rise 9.8 percent this year after dropping 16 percent in 2011, according to Nomura Holdings Inc. It may also let lines sustain peak-season surcharges after 2011’s levies failed to stick amid competition for market share.
“Shipping lines have been victorious in raising rates this year because they have exercised discipline,” said Jee Heon Seok, an analyst at NH Investment & Securities Co. in Seoul. “They’re reaping the benefits of working together and that could mean annual profits.”
Carriers are yet to say how high the surcharges will be in the peak season, which roughly runs from July until October. Demand in the period is driven by retailers stocking up for the back-to-school and holidays shopping seasons.
There is “strong” consensus among lines about the need to levy surcharges on the trans-Pacific routes this year, according to Kim Young Min, chief executive officer at Hanjin Shipping Co., South Korea’s biggest cargo-box carrier. Lines have limited antitrust immunity to discuss rates on the route through the Transpacific Stabilization Agreement. There is no similar group for Asia-Europe rates.
Improving U.S. consumer spending and job prospects may also bolster demand and shipping fees. Container traffic at major retail ports will probably jump 3.6 percent in June from a year earlier, followed by a 1.9 percent gain in July and a 7.4 percent increase in August, according to the National Retail Federation, a Washington-based trade group.
The rising outlook has prompted analysts to raise earnings estimates for container-shipping lines even after fuel prices averaged about 20 percent higher so far this year in Singapore trading than a year earlier.
Five analysts have raised their 2012 profit forecast for Copenhagen-based A.P. Moeller-Maersk this month, with none cutting. The company, which also has energy and retail units, is expected to make a net income of 21.1 billion kroner ($3.7 billion) this year, based on the average nine analyst estimates compiled by Bloomberg in the 28 days through yesterday. That compares with 15.2 billion kroner last year.
Six analysts have also raised their earnings forecasts for Neptune Orient Lines Ltd. (NOL), parent of Southeast Asia’s biggest container line, this month through yesterday, with no cuts. China Shipping Container Lines Co. has had seven increases in the past month. The company reported a first-quarter loss of 1.45 billion yuan ($230 million) late yesterday.
Even ahead of the peak season, lines have largely pushed through three increases totaling $1,100 per 40-foot box for Asia-U.S. shipments this year. The moves were coordinated by the Transpacific Stabilization Agreement. That’s also helped spot rates for Asia-U.S. west coast shipments to rise 43 percent to $2,415 per 20-foot box, according to Shanghai Shipping Exchange. Lines are now seeking increases of at least $500 as they negotiate annual contracts generally starting around next month.
On Asia-Europe routes, spot rates have more than doubled this year to $1,708 per container last week, according to Shanghai Shipping Exchange. A number of carriers have announced plans for further increases of as much as $850 per box starting May 1.
“Shipping lines will try to impose much higher rates during the peak season,” Nexen Tire Corp. (002350) said in an e-mailed response to query. “They’ve been raising rates because it’s a matter of survival.”
The Korean tiremaker shipped about 1,400 containers a month to the U.S. and about 800 to Europe last year. Volumes will increase about 5 percent this year, it said.
Customers’ acceptance of the need for increases may falter now that rates have returned to profitable levels, HSBC analysts led by Mark Webb said in an April 20 note. Current Asia-Europe rates are already “comfortably” above break-even levels, they said.
The higher rates are also tempting lines to return some idled ships to service, which may limit the ability to push fees higher, the analysts said. The capacity of ships out of service dropped to 723,000 containers as of April 9 from a peak of 913,000 in mid-March, according to data from Paris-based Alphaliner.
“Any sudden emergence of greed among carriers” is a risk, Johnson Leung, a Hong Kong-based Jefferies Group Inc. analyst, said in an April 16 note. That could undermine the “dramatic turnaround” seen this year because of capacity discipline, he said.
Lines are also still adding new vessels. The capacity of the global container-ship fleet will expand 7.4 percent this year, little changed from last year’s 7.9 percent pace, according to Nomura. New ships entering service this year will be able to hold 1.27 million containers, it said. That will rise to 1.51 million next year, helped by the launch of Maersk vessels able to hold a record 18,000 cargo boxes.
“We have an excessive supply of container ships,” Yasumi Kudo, president of Nippon Yusen K.K. (9101), Japan’s largest shipping line by sales, said on April 18 in Tokyo. “It’s going to take a significant time for the shipping lines to close the supply- demand gap.”
Still, in the short term, lines will resist the urge to slash fees to win market share and fill expanding fleets, NH Investment’s Jee said. Instead, they will focus on raising rates and adding levies in order to return to profit, he said.
“Imposing peak-season surcharges appears to be the top priority,” said Hanjin’s Kim. “Shipping lines need to survive.”
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