Container shipping rates head northwards

Container shipping lines are increasing freight rates on Indian subcontinent and global routes as they look to cover losses that are largely arising out of high bunker, or fuel, costs.

The hikes, which industry experts said were long due, are being effected by both local and global container shippers.

More increases are likely in the months to come if the current and impending ones are successfully passed on to the consumers, they said.

Capt Dinesh Gautama, vice-chairman, Container Shipping Lines Association, said, “The container shipping rates have been quite depressed for the past one year. I expect more such hikes this year.” 

This is set to push up the cost of products/ merchandise shipped, especially engineering goods, which have higher tonnage, said Aman Chadha, chairman, Engineering Exports Promotion Council.

Freight contributes about 5-10% of the product cost.

Market leader Maersk, Hapag Lloyd, Orient Overseas, French Liner CMA CGM and Mediterranean Shipping Co are among the global players which have announced rate hikes with differing quantum.

The routes include the US East Coast and India, Pakistan and the Middle East to Europe, though Europe continues to remain the weakest market.

Among Indian firms, state-owned Shipping Corporation of India (SCI) has taken the lead with an 8% rate hike that would be effected over the next one month.

“Even after this hike, the company is expected to run its container services at a loss, as the operating costs will still remain on the higher side,” a senior company official said, adding other Indian players in the container segment have either raised rates or were in the process of doing so.

The SCI official, however, said future hikes would depend on how the market responds to the recent ones.

While the container segment remains positive, the other two shipping segments — dry bulk and tanker—continue to stay depressed.

Some analysts doubt the hikes would be sustainable.

Recent announcements could well be aimed at securing a bargaining position ahead of rate negotiations under the enlarged global alliances effective April.

However, a rate increase appears unlikely given the lack of any fundamental change in demand/ supply and a lack of industry coordination to sustain higher rates, Rigan Wong, analyst with Citigroup, wrote in a note on Asian container shipping last week.

“If the hikes are part of unspoken industry coordination to push rates back to sustainable levels, then rates are likely to sustain as long as industry coordination holds. However, this scenario runs contrary to the industry’s competitive and commoditised nature,” the analyst said.

Also, export consignments from India end up paying higher prices than imports between the same two destinations because there are more shippers offering competitive rates to importers.