In the cyclical shipping business, one minute you’re printing money, the next you are battling to hold back zeros stacking up behind the minus sign in your interim results.

That’s where the lines are now and they reached this point by massively
over-ordering ships during the past few years when times were good.
Then the bottom fell out of the market.

On the transpacific, carriers burdened with overcapacity and falling
volumes panicked and signed rates agreements with shippers at bargain
prices. These service contracts locked in poor freight rates for 12
months, which means they are in place until April 2010.

This was bad news for carriers. So first the lines tried the polite
route, pleading that rates were at unsustainable levels and it was
becoming difficult to maintain schedule integrity.

The response from their customers wasn’t quite a middle finger, but
years of peak season surcharges, fuel surcharges, security charges,
terminal handling charges, slow steaming, etc, meant there was no
chance contracts would be renegotiated.

Then the lines tried another, more direct route, warning shippers that
even though they held signed contracts, at current freight rates space
could not be guaranteed. It remains to be seen how that threat plays
out, but with severe cost pressures of their own, shippers will surely
flip the one finger salute again rather than tear up contracts.

Ocean carriers just don’t seem to get it. In March this year at the
Transpacific Maritime conference in Los Angeles shippers were
dismissive of the liner predicament. The prevailing sentiment was “who
cares if a carrier goes under. There is plenty of capacity around to
fill any hole”.

That is a corner into which the shipping lines have painted themselves,
and attempting to blackmail their customers on the transpacific into
tearing up service contracts is another step down the wrong road on
which the industry has been travelling for years.

Admittedly, carriers have made attempts to ease the fractious
relationship they have developed with customers. At the TPM last year,
NOL chief Ron Widdows called for better cooperation between shippers
and the lines with more transparency and compromise. But with the
industry in the doldrums there is little evidence of understanding from
either side.

And then just when you thought the global situation could not possibly
get any worse for the lines, along comes Nils Andersen, boss of the
world’s biggest shipping company AP Moller-Maersk, and says Maersk will
fight a rates war to defend its dominant market share.

Shipping lines have been driven to the edge and are desperately trying
to increase freight rates, and Maersk now wants to fight a rates war
with its competitors? Nice one.

If lines on the Asia-Europe trade thought achieving the raft of general
rates increases leading into the peak season was difficult before
Maersk threatened a rates war, they should try convincing their
customers now. Good luck with that.

Source: CargonewsAsia

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