The Hindu Business Line : Container rates well-stacked

The buoyancy in the container market means the shipping industry could within a year see container freight rates matching the peak levels of 1987-1988.

THE container freight market is heading for a bull run after bleeding in the last six-eight years. In the last few months freight rates have stabilised with the improvement in global trade. Volumes — both import and export — have surged steadily.

For shipping lines, especially in Asia, the future looks promising with freight rates up and cargo volumes rising steadily.

However, fewer container ships in the market to carry boxes could create a demand-supply mismatch. This, in turn, could push up container freight rates and affect Indian trade. Exporters would spend more to despatch their products, an industry source said.

The buoyancy in the market would mean the shipping industry in India could see within a year the container freight rates matching the peak level of 1987-1988, the source said. For a twenty-foot equivalent unit (TEU) to Europe from Chennai, the freight rate today is around $1,100. This is compared to a low of $600 two years ago.

The rate was $800-$900 three-four months ago. The all-time high in freight rate to Europe from Chennai was $1,800-1,900 in 1987-88.

"There could be improvement in freight rates in the coming months," said a source. Due to mismatch, various shipping lines would implement GRI (general rate increase) across destinations. This, in turn would raise container freight sharply in a few months, the source said.

According to another source, container ships of up to 2,000 TEU capacity are a rarity now. A number of small ships have been scrapped in the last few months. Further, large ships of 3,000 TEUs and above are slowly replacing smaller ships.

With India heavily dependent on feeder container vessels, which are small, to tranship containers in and out of the country, the demand-supply mismatch could only hurt the Indian trade. The increase in container volume is also due to a shift of break-bulk cargo to containers following shortage of break-bulk vessels.

For instance, such cargoes as waste paper, pulses, rice, sugar and wheat that used to move in break-bulk are today transported in containers. Some companies are even exploring the possibility of moving iron ore by containers, the source said.

Shipping lines are riding on a surge in export volumes from Asia, particularly from China. Some of the major shipping lines had last September predicted that they would carry 10 per cent more cargo to the US West Coast this year. According to the US International Trade Commission, Asian exports to the US rose 7.1 per cent in the first 11 months of last year to $421 billion.

In the last few months the demand for containers to carry clothes, computer monitors and other Asian exports led shipping lines to raise freight rates to the US west coast by $150-200 per TEU, said a source.

The surge in container volume has, meanwhile, led to improved financial performance by global major shipping lines in Asia.

In February, the Chief Financial Officer of the Singapore-based Neptune Orient Line, Mr Lim How Teck, was quoted by local media as saying: "The stars and the planets and everything are in alignment. Shipping freight rates have never been higher in the tanker, container and bulk carrier businesses." And, he was right.

A major news wire service on Tuesday said that NOL had a sharp turnaround in full-year earnings, benefiting from higher sea freight rates and exceptional gains.

The company's net profit for the year ended December 2003 was $428.8 million compared to a loss of $330 million in the year-ago period.

Similarly, Malaysia International Shipping Corp Bhd and Malaysian Bulk Carriers Bhd (Maybulk) performed better in the last quarter on higher freight rates and improved operating efficiency.

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