Monday, July 19, 2010

Buoyant freight rates

Malaysia's container shipping freight rates have returned to near pre-crisis levels, driven by a combination of demand and shortage of container equipment.

"We started to see rates go up from the last quarter of last year," CMA-CGM Malaysia managing director Simon Whitelaw told Business Times.

"All main shipping routes are seeing an uptrend, especially for long haul freight rates," he added.

While recently there have been reports saying that shipping lines have been raising rates indiscriminately for cargo moving from Asia to Europe, shipping lines insist that it is part of a rate restoration programme, following a recovery in the global economy.

For example, freight rates on the Asia-Europe trade route plunged to US$250 (RM800) per box or 20-foot equivalent units (TEUs) from a peak of US$2,000 (RM6,400) per box in 2008, as the global economy slowed.

Rates are currently hovering at between US$1,750 and US$1,780 (RM5,600 to RM5,696) per box.

"During the crisis, shipping lines have cut capacity, laid up vessels, laid off people and support industries were also affected. Now that there is a recovery you can't automatically get everything back up. It takes time," Shipping Association of Malaysia chairman Ooi Lean Hin said.

Last year, the global container shipping industry was reported to have lost more than US$15 billion (RM48 billion) due to slumping trade, overcapacity and price wars.

The shortage of containers for export and vessel capacity has also been a topic of concern of late. Unreplenished stock equipment and the scrapping of old containers have resulted in a shortage of container equipment.

"The challenge for exporters now is to find equipment and/or vessel space to ship their cargo, rather than harp on rates which have yet to return to pre-crisis levels," Ooi said.

That's because the squeeze on capacity and equipment, combined with the willingness of Chinese shippers to pay more, have resul-ted in the principals of container lines allocating more container space to them and less to Malay-sian shippers.

For example, the rate for carrying a 20-foot box from China to Europe is some US$2,000 (RM6,400 ).

"I've always said that the shipping industry is one that does not require any regulatory control because shipping is very sensitive to the function of demand and supply," Ooi said, reiterating that shipping lines do not operate like a cartel.

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