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OVER
the years we have witnessed a number of
peculiar moves by the shipping lines. However,
typically when we speak of peculiar moves
in the container shipping industry, this
does not necessarily mean surprising moves
at all.
Rather,
one comes to expect the unexpected in this
industry as shipping lines defy logic in
the running of their operations on a daily
basis.
For
one, the lines order tonnage en masse when
it is clear that shipping demand will not
be able to match it. Carriers have also
shown a proclivity to chase market share
by lowering rates to unsustainable levels,
even if it means losing pots of money.
Liner
customers themselves have told this publication
time and again about carrier salesmen offering
a low freight rate first and then asking
what the customer's shipping requirements
were second.
It
is mind boggling stuff, but it is hardly
surprising.
But
then we come to the recent decision by the
world's second largest shipping line, MSC,
to move to all-in rates on the Asia-Europe
trade, as reported in the most recent DynaLiners
Weekly report published by Netherlands-based
consultancy group, Dynamar...
 click image
to enlarge
Dynamar,
which is an organization with a long history
in this industry, were clearly surprised
as no doubt many others in the industry
are at the ploy.
"The
decision of MSC to include BAF, Piracy and
Suez Canal surcharges into its Far East-Europe
rates continues to surprise and rouse emotions.
Carriers have always been dead against all-in
rates for one simple reason: the general
perception that base rates are negotiable,
while surcharges are fixed.
"Because
of that, surcharges were relatively easy
[to introduce and] to increase, something
practically impossible for the base rates
whose only direction has been exclusively
south over an extended period," it
said.
Dynamar
notes that this practice has allowed the
carriers to offer "negative" freight
rates, and then add on surcharges to protect
their revenue.
Shippers
we have spoken to over the years clearly
believed this to be the case, and as such
have been very outspoken on the issue of
surcharges. However, some do acknowledge
the need for a bunker tariff in times where
oil prices have been at their absolute peak.
But
again, this is all common knowledge in the
industry. So the real question that remains
is what is MSC thinking?
Could
this in fact be a "new low" in
terms of competitive carrier behaviour.
We
know that Asia-Europe rates are close to
an all-time low, at least on the spot market.
Just two weeks ago the average freight rate
from Shanghai to Europe Base Ports dropped
below US$600 per TEU. And this rate is actually
the all-in rate. Therefore the base rate
shippers are now paying would be practically
free of charge.
Therefore,
it is clear that carriers cannot compete
on price in the Asia-Europe trade anymore.
So by offering all-in rates themselves,
MSC has potentially given the impression
to the market that surcharges are up for
negotiation as well.
If
this is the case, then it could turn the
current rate war into a rate bloodbath of
genocidal proportions. Surely if this does
occur then the pool of carriers on the Asia-Europe
trade will dry up fairly quickly.
At
this stage it is all just speculation. Whether
other carriers follow suit or not remains
to be seen, and in all truth MSC's move
could simply be a marketing gimmick to get
the attention of potential customers.
Nevertheless,
it is an interesting and surprising move
to say the least. It will be very interesting
to see how the market reacts, in particular
how the competition takes the news.
One
would hope that the shipping lines have
learned from their past mistakes and that
they will avoid any moves to further damage
the current market. But then again with
rates on the Asia-Europe trade now in freefall
mode it would appear that the carriers are
not the most avid students of history.
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