Published July 9, 2009

NOL unit, shipping lines raising rates on Asia-US routes

They seek to end price war; will also raise fuel levies and may add peak season surcharges

	Email this article
	Print article
	Feedback

(HONG KONG) Neptune Orient Lines's APL unit, China Cosco Holdings Co and 12 other container lines agreed to raise rates on Asia-US routes, seeking to end a price war caused by slumping demand, overcapacity and 'panic'.

The lines decided on a US$500 increase for carrying a 40-foot box from Aug 10 as a 'voluntary guideline', the Transpacific Stabilization Agreement (TSA) said in an e-mailed statement on Tuesday. The companies will also raise fuel levies and may add peak season surcharges, the group said.

Container lines will try to raise rates again after an April increase collapsed amid rising competition and a 20 per cent drop in demand, the TSA said.

Spot market Hong Kong-Los Angeles rates have slumped to as low as US$900, according to Lloyd's List, as US retailers pare orders for Asian-made furniture and toys on weak consumer spending.

'The east-bound transpacific trade lane has been driven by panic,' Lee Won Woo, chief executive of TSA member Hanjin Shipping Co's container unit, said in the statement. 'Panic is difficult to stop once it has begun.'

Average revenue per container dropped as much as US$1,200 from October to May, the TSA said. Container lines should have resisted pressure to cut rates covered by long-term contracts to match spot rates, it added. Hong Kong-Los Angeles spot rates have fallen about 56 per cent over the past year, Lloyd's List said last Friday, citing Drewry Shipping Consultants.

'The lines are taking the opportunity of the peak season to reduce losses,' said Quam Ltd analyst Allen Wong. 'That doesn't mean demand has come back.'

Container-shipping lines traditionally raise rates in July and August as shops stock up for the peak back-to-school and holiday shopping periods. China Shipping Container Lines Co, the country's second-biggest box carrier, has said that it plans to almost double rates on Asia-Europe routes this month.

Shipping lines have also laid up ships, cancelled routes and fired staff as they battle plunging world trade. Neptune Orient, which has announced 1,000 job cuts, posted its biggest quarterly loss in at least seven years in the three months ended April 3. Swire Shipping Ltd, an affiliate of Cathay Pacific Airways Ltd, axed two round-the-world services last month.

'The damage is serious,' Mr Lee said. 'If current rates are extended out over 12 months, it is likely that the trade will encounter significant financial challenges.'

APL, China Shipping, CMA-CGM, Cosco Container, Evergreen Marine, Hanjin, Hapag-Lloyd AG, Hyundai Merchant Marine Co, Kawasaki Kisen Kaisha Ltd, Mediterranean Shipping Co, Nippon Yusen KK, Orient Overseas, Yangming Marine Transport Corp and Zim Integrated Shipping Services make up the 14 members of the TSA. -- Bloomberg