Shanghai Containerized Freight Companies Falling Victim To Consolidation

Posted: June 17, 2015 in Economics

The Shanghai-Rotterdam sub-index plunged 14.4% last week to an all-time low of $243 per twenty-foot equivalent unit (TEU). Rates began to collapse in February. By April, when they’d crashed to around $400 per TEU, Drewry Maritime Research estimated that the break-even rate for most carriers was $800 per TEU on that route. But now, the rates, at $243 per TEU, don’t even cover the cost of fuel of about $300 per TEU. Hence the screaming by the shipping execs!

China-Shanghai-Containerized-Freight-index-2015-06-12

But not everyone is screaming.

“I can’t speak for other companies, but small and mid-size carriers controlling a 3% to 5% market share – with very few exceptions – have been unprofitable for the last seven years,” explained Nils Andersen, CEO of the Danish giant A.P. Møller-Mærsk, whose Maersk Line is the largest container carrier in the world.

“After such a long period of not being profitable, it defies logic to continue to invest in the business,” he told the Wall Street Journal, thus proffering his agenda: pushing all but the largest carriers out of the business to build a global shipping oligopoly, with him at the top.

Overcapacity and “sluggish westbound volumes have brought about the worst spot-market rate collapse that this trade has experienced,” Drewry found in a separate report, as shipping volumes in the first quarter had fallen 1% year over year.

The New American opined by back in May:

The collapse is being echoed by other indexes reflecting the breathtaking decline in China’s exports. For example the much-broader China Containerized Freight Index (CCFI), despite being manipulated by the Chinese Ministry, has dropped from 1070 in February to 899 in April.

Full Story @ [Wolf Street]

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