French container line CMA CGM halts spot rate hike globally in relief to traders

P Manoj Mumbai | Updated on September 11, 2021

Other big global box lines expected to follow in pausing spot rate increases

CMA CGM S A, one of the world’s top container lines, have put a freeze on spot rate hikes till February next year as several nations turn the heat on the unprecedented surge in global container shipping costs since January, roiling exporters and importers.

The French container line CMA CGM said it has halted spot rate increases from September 9 till February 1, 2022.

Pressure on shipping lines

The Group is prioritizing its long-term relationship with customers in the face of an unprecedented situation in the shipping industry, the world’s third largest container line said.

“Since the beginning of 2021, container shipping spot freight rates have continued to rise due to port congestion and the major imbalance between demand and maritime container transport effective capacity,” CMA CGM said.

“Although these market-driven rate increases are expected to continue in the coming months, the Group has decided to put any further increases in spot freight rates on hold for all services operated under its brands (CMA CGM, CNC, Containerships, Mercosul, ANL, APL),” the line said.

CMA CGM is seeking to provide some “visibility on pricing during the peak Christmas season” to its clients, a container shipping industry source said.

Other global container lines such as Hapag-Lloyd A G, Maersk Line and Mediterranean Shipping Company S A are expected to join CMA CGM in holding rates.

“The kind of pressure the Indian government, the Federation of Indian Export Organisations, export promotion councils and shippers have put on the shipping lines, other lines may also halt rate increases,” reckons T S Ahluwalia, President, Northern India Shippers Association (NISA).

“There is lot of pressure on the shipping lines to pause rate increases. Every country is keeping a close watch on them,” Ahluwalia said.

The ocean freight charges have increased sharply from India since the beginning of the year. For instance, the rate to Felixstowe port, which was $1,000 in February, is now hovering at $7,000, while the rate to New York is currently $12,000 from $2,000 in February.

The freight rate to Australia have risen to $8,000 from $1,500 while the container shipping rate to Toronto has jumped from $2,500 to $17,000.

The rate to South Africa has increased to $6,000 from $1,500 in February.

The soaring freight rates have helped container lines reap bumper profits in the first half of calendar year 2021.

If freight rates keep rising, the container lines could collectively make $100 billion in operating income in 2021, according to Drewry Maritime Research.

Germany’s Hapag-Lloyd AG earned more in the last six months than in the previous ten years combined.

According to analysts, the Danish shipping giant Maersk Line is expected to make around $14.5 billion this year.

“Looking at the market environment today, we however do not believe that the situation will return to normal any time soon – despite all the efforts made and the additional container box capacity that is being injected. We currently expect the market situation only to ease in the first quarter of 2022 at the earliest,” Rolf Habben Jansen, CEO, Hapag-Lloyd, said on August 12 while announcing the firm’s half yearly results.

“It is expected that the rates will settle at the current levels,” Ahluwalia said, noting that the rates have to “stop somewhere”.

“Other shipping lines won't be able to increase rates freely. They have to review market dynamics. So, on current rates, there won't be any significant jumps and the rates may settle at the prevailing levels,” he added.

However, rate reductions won’t be visible until main ports in the United States, Europe and China return to normalcy in operations, he added.

Published on September 10, 2021

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