Rates took another battering this week on the Asia-Europe trade, falling $193 to $640 per TEU. The last two weeks alone have seen rates on the key East-West route fall a staggering 42%, highlighting the farce that is GRI’s. Rates year to date are now on average 47% lower than the corresponding period of 2014, at $673 per TEU.
Alternatively at the start of 2015 carriers could of utilized hedging tools to protect themselves from rate erosion. The forward curve from January 2015 highlights that carriers had an opportunity to lock in a proportion of their income at levels substantially higher than the year to date average. Moreover by securing a proportion of their income in advance they could have removed or limited the effects of rate volatility on their business.
Since January the forward curve has subsequently moved lower in line with the collapse in freight rates. Today the curve, although lower, can still provide carriers with a tool to secure a proportion of their income in advance and therefore remove the uncertainty surrounding freight rate developments. With Maersk Line again reiterating its view that the market will remain under pressure due to overcapacity and weak demand, being able to accurately forecast future freight income should serve as a useful tool to the carrier community.
Even Maersk Line was unable to fully protect itself from the most recent declines in freight rates. The Danish carrier saw its average freight rate per FEU fall by over 14% year on year during Q2 resulting in a reduction in income of 9.2% or $639m. This was despite an increase in lifting’s of 3.7% to 2.5m FEU.
The saving grace once again came through cost reductions, which saw unit costs decline by 13% ($338) to $2,246. However the reduction was not due to operational efficiencies with the fall in bunker costs resulting in a saving per FEU of $220. The remaining savings were predominately attributed to the appreciation of the USD.
Also interest of note was that Maersk Line decided to adjust its growth target from growing in line with the market to growing at least with the market to defend its market leading position. As seen during Q2 the Danish line is prepared to lower the rates it offers to customers if it results in a retention of market share. This adjustment should send warning signals to other carriers who may have been thinking about increasing their own market share at the expense of Maersk Line.