Last chance for FEFC to stem rate slide

CONTAINER lines will have one final attempt next month to collectively stop the slide in Asia-Europe freight rates before the conference system is disbanded.


After that, each line will be on its own when publishing a tariff and setting prices.

Having abandoned a proposed general rate increase in April because of deteriorating market conditions, Far Eastern Freight Conference lines will seek rises of $300 per teu on July 1 for cargo moving from the main Asian ports to Europe, and $400 per teu for freight being shipped from outports in countries such as Indonesia, the Philippines, Thailand and Vietnam.

Original plans to follow up a July increase with another in September have now been dropped, FEFC chief executive Rod Riseborough told Lloyd’s List.

Spot rates continue to slide, with some down as much as $200-$300 per teu over the past couple of months.

Since last summer, when the trade was powering ahead, spot rates have slumped by up to $500 per teu, equivalent to around 25% in some cases.

This decline does not cover all cargo since much is covered by service contracts that may have been negotiated when conditions were better. But the drop does not bode well for future service contracts.
Although an earlier scare about a sharp fall in westbound volume growth proved to be unfounded after some lines corrected their April figures, there is still a sizeable gap between supply and demand that is denting ship utilisation levels and eroding sentiment.

The FEFC issued amended figures late last week that showed 10.5% growth in Asia-Europe liftings in the first four months of the year, a revision from the earlier wrong10.1% figure. The April number was revised from 5.5% to 7.5%.

In the January-April period, volumes from the Far East to northern Europe were up 8.5% to just over 2m teu, while to the Mediterranean the increase was 14.4% to 1.1m teu.

Provisional May figures show volumes to northern Europe were 14.7% higher than a year ago, with the Mediterranean trades recording 13.6% growth, the FEFC said.

But while both corridors are still achieving healthy growth, capacity is up by even more.

Newbuildings are being delivered, with more and more lines increasing the number of ships in their longest Asia-Europe strings from eight to nine, while tonnage has continued to shift from the depressed Pacific trades.

Furthermore, an estimated 250,000 teu of capacity that was withdrawn from the Asia-Europe trades in the first quarter during the Chinese lunar new year period is now back in service, adding to the over-supply.

While the trade grew at around 10.5% westbound in the first few months of the year, capacity was up by about 17%, the FEFC estimates. As a result, utilisation has dropped from 95% in April 2007 to 91% a year later, although there was some improvement in May.

Next month’s planned rate restoration will be the last by the FEFC that will close down in October when conferences become illegal in Europe and each line will have to set freight rates on an individual basis.

Latest figures from Clarksons put overall projected growth in the global container trades at 9% thus year, while supply is expected to expand by 12.7%.