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Shippers report feeling like kids in the candy store with rates this low. Container report Nov 4

By • Nov 5th, 2011 • Category: Containers

The Coracle Container market podcast for Nov 4, 2011 in association with GFI

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Thank you for downloading the container market report from Coracle Online and GFI for November 4th 2011. This report will look at the derivative and physical markets.

We start with the paper market and the Shanghai North West Europe route where although everyone knows that the current rates are unsustainable for the carriers we only saw a marginal fall across the entire forward curve this week .The steep contango has been attracting sellers in the market but sellers are holding out for unachievable rates.

On the Shangahi USWC route the small rise in rates appears to have been a dead cat’s bounce. As a result, there was little change to the forward curve this week.

In the physical market and on the Asia Europe route, a shipper yesterday mentioned that they feel like a kid in a candy shop at the moment with all the low rates being on offer. Rates on the Asia – Europe trade lane have fallen by 56% in the year to date and the decline is expected to continue until the end of the year. Physical rates in the market have fallen to all new lows of $450/teu for some named accounts, according to our contacts in Asia. That is only $100 higher than the lows seen in 2009. It looks like it’s a little bit of history repeating itself. However for a smaller shipper only wishing to move one box, they can still achieve rates of around $525/teu. If anything, the SCFI index is too high and should go further down next week. With only 8 more weeks to go until the end of the year and 11 more weeks until Chinese New Year, will carriers act now to prepare themselves for the 15-day holiday during the celebration of the Year of the Dragon?

The same can be said for the Transpacific trade lane. However, stable volumes alongside a more disciplined supply side have given some support for the market and further services are expected to be suspended which should lend a helping hand for rates.

Do you remember the time when it was approaching the end of a school term and you were dreading to get that report card because you knew that you didn’t perform well during that term? It seems like this is what the carriers are facing right now as we are in the middle of reporting season. Carriers failed to maximise shareholder wealth as profits were wiped from the current rate war and increasing costs. They also failed to mitigate their losses as there seemed to be no focus on any form of risk management. In many of their results reports, carriers explicitly stated the problems they were facing (falling spot market rates), but there was a lack of mention on any solutions to meet these problems (hedge future spot market rates). To all the CEO’s of liner companies who told the industry last year they do not need derivatives, we want to ask the following question: “How did your physical contracts perform in 2011? What percentage of containers actually showed up? What percentage of shippers actually paid the fixed price as agreed to earlier in the year?”

Thanks for listening