Liner rates down again and a look at the Daily Maersk service. Coracle/GFI podcast for 16 SepBy james tweed • Sep 16th, 2011 • Category: Containers
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Graph referred to in this episode:
Thank you for downloading the container market report from Coracle Online and GFI for September 16th 2011. This report will look at the derivative and physical markets.
We start by looking at the paper market and the Shangahi North West Europe route and in 90% of our weekly updates we have pointed out that the market is going down and that the best thing carriers could do is sell paper at a premium to the falling spot market. Well the pace of the paper decline is increasing, which is understandable because physical prices are still at a big discount to the paper rates. However we want to express our worries about the current physical deals on offer. Given the current direction of the market your carrier might not be able to perform on its physical contract. Either your containers will be rolled over when the market goes up, or if markets keep falling your carrier might not exist in one years’ time. Buying cleared derivatives might be a safer way to protect your upside than fixing physical long term contracts.
The same arguments are valid for the route to the USWC. However, relative to the routes to Europe the forward rates for the USWC are too strong and we expect rates to come off further.
This was another week with a lot of hype created by the marketing machine of Maersk. This time it is all about Maersk establishing a conveyor belt between the Far East and Europe. Guaranteed delivery of your boxes in 34 days. We wondered if this really is so unique? It is something unique in the container world, however, the proposed mythology has for the last 20 years been the standard in the airline industry. The booking system and methodologies of the airline industry can easily be copied. This should result in far more choice and better service, and would probably suit the shippers and freight forwarders much better than having one liner company cornering the market. We had a quick look through the various services on offer by other liner companies competing with Maersk, to see if the proposed 34 days transportation time is truly unique. We have added a list in the show notes. A quick look on the internet provided us with 12 liner services on offer that can move your boxes within 31 days (3 days quicker than Maersk’s 34 days) from Shanghai to Rotterdam. The table shows that it wouldn’t be difficult to arrange a daily service whereby your containers arrive within 34 days. If lines scheduled their services right, the industry could easily achieve a twice a day service moving boxes from the Far East to Europe in 31 days. Most shippers won’t mind booking with carrier A or B provided that their boxes arrive on time. What the industry needs is a transparent booking system, like the ones that are in place in the airline industry. A shipper should simply get an overview of all shipments available that guarantee your boxes to arrive at the right time. This is something that can be achieved in the airline industry within 5 seconds with the simple clicking of a button. There is a good chance that the container line industry will evolve in the same way as the airline industry, but there are some improvements needed…
Firstly, airlines increase speed if they depart too late, and carriers should do the same to compensate for delays.
Secondly, airline tickets are bought spot (which gives some market risk) or they are paid for up-front (a fixed price, but there is some default risk). The derivatives available in the container industry can eliminate both risks.
Thirdly, the low service tickets are cheap, because you risk being over booked (in the liner industry case, containers get rolled over).
Forth. Premium tickets will never be overbooked, if you book business, you will arrive on time
And fifth, there is a cost for cancelling and changing tickets. If you don’t show up, your ticket is non-refundable.
All that needs to be done is have freight forwarders and carriers offering a booking platform, where all the services of the carriers are firm on the offer. Perhaps it could be taken a step further where a carrier can offer the service his customer requires by simply arranging the freight on a competitors vessel. As long as the rates do not pay for all the cost, it is a far more economical way to serve your customers!
In the airline industry we have seen that competition increases service; the amount of flights on offer, the amount of direct flight connections from A to B, and this is all achieved at attractive rates. Our expectation is that the increased reliability offered by Maersk will simply be copied by their competitors. This will result in Maersk not being able to corner the market as nobody in the market is going to allow Maersk to establish a monopoly on this trade route.
On a positive note, we expect that the marketing campaign by Maersk to have a positive effect on the overall service levels in the industry but on the negative side, the aggressive over-ordering of vessels to achieve daily service will have a long lasting, negative, impact on freight rates.
Thanks for listening