Shipping lines manipulate market to keep rates high

Shippers are used to freight rates falling after the Chinese New Year holidays – it’s the reason why the biggest importers would normally negotiate their contracts now – but it’s increasingly likely that rates will stay at the high levels experienced recently, and may even go up.

Sea freight markets – particularly from Asia – have long endured volatile prices see-sawing from peaks to troughs, while the shipping lines have struggled to make consistent returns as the fight to gain traffic often replaced any economic sensibility.

Since the demise of the Asian ‘Conference’ system it has been much harder for the lines to coordinate market control measures, but the recent alliance realignment gives them more control over fleet utilisation.

By the middle of August last year the global idle fleet amounted to 904,000 teu.

Hanjin Shipping’s collapse meant that 98 ships, with an aggregate capacity of around 610,000 teu were suddenly left without employment, boosting the idle fleet to 1.7m teu by mid-November.

The Hanjin failure and the biggest peak season since the economic crash of 2008 appears to have triggered a new determination in the carriers to protect their recent gains and consolidate their currently dominant position.

Having already endured big rate rises and the biggest peak season for eight years, shippers now face unprecedented space challenges as carriers seek to support freight rate levels by withdrawing huge amounts of capacity from the trade via void sailings.

The Loadstar are reporting that carriers began last week to reduce capacity by 33% on the westbound Asia-Europe trade, with full capacity reduced this week by 43%, with a further 8% reduction for next week. The equivalent of 200,000 teu’s being taken out of service.

The ‘blank sailing programme’ extends across every alliance and carrier. It is planned and documented and has all the signs of being extensive.

Looking at historical precedents there is always a chance that rates could fall again, especially if carriers decide to bring more capacity back, or one or more breaks ranks on the current pricing discipline to win market share.

Of the former Hanjin fleet only four small vessels have been scrapped and 31 have actually come back into service, with Maersk chartering 11 of them.

While this development is encouraging, the equivalent of over 1.5M teu’s remain idle which means that rates are not going to soften anytime soon.