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Shippers prepare for bruising Asia/Europe contract season

European shippers are preparing for the upcoming contract season with a warning to shipping lines that should they seek to maintain the massive hikes in rates seen over this extraordinary year they will take further action.

Reports of Asia to Europe rates as high as US$10,000/FEU are said to include the various surcharges applicable to freight currently moving on the trades, but James Hookham, Secretary General of the Global Shippers’ Forum (GSF), told Container News, that the European Union (EU) renewed the lines’ Consortia Block Exemption Regulation (CBER) just before the Covid-19 virus hit trade. “That hasn’t been forgotten, it’s unfinished business,” he said.

According to GSF, many shippers are simply not moving cargo at the moment due to being “priced out of the market,” with many small and medium sized businesses unable to raise their prices to meet the extra costs. “They can’t absorb the rate increases and so they lose the business,” noted Hookham.

Larger businesses may in the long-term look at shifting production nearer to the retail market, but at the moment shippers believe that the rates currently being asked are “transitory” and that these will fall next year as the exceptional circumstances driving this year’s market are resolved and trade levels return to more normal levels.

“We will see how the contract negotiations go after the Chinese New Year and if our members report back that they are unhappy with the lines’ behaviour we’ll take more action,” explained Hookham. He went on to say that this would mean a formal complaint to the EU on the rates issue.

“We’ve already had early reports of difficult negotiations from shippers,” added Hookham, as early contract levels are gauged, and some shippers are also in mid-contract reviews with the lines, so that will all be considered as the broader picture emerges over time.

In addition, the GSF has collaborated with maritime consultancy MDS Transmodal to deliver a quarterly report on the container shipping market, as a tool for shippers to help in the difficult negotiations that lie ahead.

The report clearly shows that the unit costs are dropping, yet the unit prices are increasing said Hookham. The report concluded that compared to 2019, unit costs fell in 2020 as bunker costs fell, moreover, “Excluding bunkers, costs decline (as utilisation improved) whereas revenues net of bunker costs jumped in Q1 2020 and that gap over costs has continued to grow,” according to Hookman.

According to MDS Transmodal unit revenues ($/TEU) started to rise in the first quarter of 2020 ahead of any Covid-19 effects, this reflected increased utilisation of deployed capacity and also the surcharges applied in consideration of the introduction of Low Sulphur Fuel (LSFO).

However, the report concluded, “There is no evidence of a cost spike. In fact unit costs including bunkers barely moved in Q1 2020 and fell by 15 points by the end of Q3. Revenue increases are not being driven by higher costs.”

In addition, the report highlights the decline in capacity from the third quarter in 2019 compared to the third quarter in 2020, with the conclusion that average capacity on the Asia to Europe trades fell by 6% year-on-year as alliances moved vessel capacity to compensate for reduced demand in the trades.

Meanwhile, the figures show that freight on the Asia to Europe headhaul leg were 2.2% higher in Q3 2020 than in the same period of 2019, with the largest increase in cargo going to Poland.

Nick Savvides
Managing Editor

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