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November 26 2018

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6 The Journal of Commerce | November 26 2018 www.joc.com Spotlight Asia-Europe capacity cuts ahead? With Asia-Europe contract negotiations getting under way and carriers facing serious profitability issues, concerns are mounting that carriers could slash capacity to stem an almost 10-week spot rate decline. The pressure of declining volume growth and falling rates has been building steadily. Despite peak-season demand — Asia-Europe volume growth has been declining since May — the rate to North Europe has fallen by approximately $200 since August. Some blank sailing announcements have been made for the slow month of November as carriers try to better match capacity with demand, but the uncertainty for shippers preparing for contract talks is how aggressive the capacity management will be into December and January. As of mid-November, the Ocean Alliance had announced canceled sailings on the Asia-North Europe and the Asia-Mediterranean routes with the eastbound service blanked in the third week of December. Strengthening demand will certainly be a factor that will determine the level of canceled sailings for the remainder of the year, but it's not looking positive. The latest Container Trades Statistics data show volume growth has declined year over year every month from May through August, and weakening European economies suggest that trend will continue. How deep carriers go with further void sailings will depend on this demand strength, Drewry Bunker blues for carriers Global container carriers' third-quarter results reveal the depth of the challenge carriers have in recouping even higher bunker fuel costs when the global low-sulfur mandate takes effect in 2020. Carriers' rising volume and revenue — oen double- digit increases year over year — generally haven't been accompanied by rates rising to levels capable of offsetting the effects of steadily escalating bunker fuel costs. Maersk Group reported a $191 million profit in the quarter, although it lost $114 million in the first nine months of the year; third-quarter unit costs were pushed up by a 47 percent year-over-year jump in bunker prices. With continued operations and impairment losses factored in, Maersk Group recorded a $251 million third-quarter profit, and a $100 million profit for the January-September period. By contrast, Hyundai Merchant Marine crashed to a $166.7 million net loss in the third quarter, which it blamed on high fuel prices and weak rates. The poor result follows a second-quarter loss of $242.7 million. Although Hapag-Lloyd reported a $15 million profit with the help of its United Arab Shipping Co. merger, a surge of peak-season volume failed to generate a corresponding increase in profit, underscoring how inflated bunker fuel prices are eroding higher rates on some trades. Container volume handled by the Hapag-Lloyd/UASC entity in the January- September period rose 27 percent to 8.9 million TEU, During that same period, however, the average freight rate fell to $1,032 per TEU.The pressure to recoup higher bunker costs will increase through 2019 as the industry gets closer to the International Maritime Organization's (IMO's) mandate requiring sulfur emissions to be reduced from 3.5 percent to 0.5 percent, starting Jan. 1, 2020. Peter Nielsen, global shipping manager at Bestseller and a participant in a JOC webinar this month, said he expects fuel costs to keep rising. "We had a meeting with one of our main carriers, and they were talking about putting the fuel element outside the rates, and that the model could move into the low-sulfur cost recovery they need for 2020," he said. "The kicker is the low-sulfur for the end of 2019 going into 2020. Carriers, which have a spotty record of recouping higher operating costs, are facing low- sulfur fuel costs that analysts estimate could be as much as 50 percent higher. While scale of the cost hitting carriers and shippers is slowly coming into view, carriers privately worry about their ability to pass on the costs to customers. The Journal of Commerce Executive Editor, The Journal of Commerce and JOC Events: Chris Brooks 609 649 2181, chris.brooks@ihsmarkit.com Executive Editor, The Journal of Commerce and JOC.com: Mark Szakonyi 202 872 1234, mark.szakonyi@ihsmarkit.com Managing Editor: Barbara Wyker 908 507 4802, barbara.wyker@ihsmarkit.com Senior Editors: William B. Cassidy Trucking and Domestic Transportation 202 872 1228, bill.cassidy@ihsmarkit.com Bill Mongelluzzo West Coast 562 428 5999, bill.mongelluzzo@ihsmarkit.com Hugh Morley Northeast, Mexico 646 679 3475, hugh.morley@ihsmarkit.com Eric Johnson Technology 213 444 9326, eric.johnson@ihsmarkit.com Janet Nodar Breakbulk and Heavy Li 251 473 2742, janet.nodar@ihsmarkit.com Greg Knowler Europe +44 7976798770, greg.knowler@ihsmarkit.com Turloch Mooney Global Ports +852 9011 9109, turloch.mooney@ihsmarkit.com Associate Editor: Ari Ashe Southeast Ports, Intermodal Rail 202 548 7895, ari.ashe@ihsmarkit.com Web Editor: Joseph Lazzaro 917 309 0148, joseph.lazzaro@ihsmarkit.com Data Analyst: Marcin Lejk +44 58 741 62 70, marcin.lejk@ihsmarkit.com Shipper Engagement Manager: Dustin Braden 646 679 3450, dustin.braden@ihsmarkit.com Senior Content Editor: Alessandra Gregory Barrett, 860 248 5238 alessandra.barrett@ihsmarkit.com Senior Designer: Sue Abt, 862 371 3534, sue.abt@ihsmarkit.com Designer: Bryan Boyd, 908 910 7849, bryan.boyd@ihsmarkit.com Publisher: Tony Stein, 770 295 8809, tony.stein@ihsmarkit.com Sales: Cindy Cronin, Strategic Account Manager Southeast, Gulf, Canada sales, 954 260 6061 Jean Gibbons, Senior Sales Executive West Coast, Midwest sales, 706 469 7160 Ria Van den Bogaert, Sales Representative Europe, Middle East sales, +32 2 569 8905 Alex Remstein, Associate Sales Specialist Reprints/Classifieds/Copyrights, 646 679 3418 For Magazine Subscription Customer Service: www.joc.com/help 450 West 33rd St., 5th Floor, New York, N.Y. 10001 800 952 3839 Executive Director, Editorial Content, Maritime & Trade, IHS Markit, Peter Tirschwell Executive Director, Media & Events, Maritime & Trade, IHS Markit, Amy Middlebrook Manager, Production, Carmen Verenna Product Manager, JOC, Jesse Case ©2018 The Journal of Commerce — All Rights Reserved For more information, visit our website, www.joc.com. 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