Buying interest pushing up container derivatives, a bit… Feb 13By james tweed • Feb 13th, 2012 • Category: Containers
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Thank you for downloading the container market report from Coracle Online and GFI for February 13th 2012. This report will look at the derivative and physical markets.
Starting with the paper market and the Shanghai to NW Europe route and March prices gained $58 this week, supported by increased buying interests, suggesting that only 7.7% of the avg $750 rate increase announced by carriers will be implemented. Overall, the value of the prompt months (Feb to June) rose on average by $23 over the course of the week, which would fall below carriers’ hopes of restoring rates to above
On the Shanghai USWC route the curve remained largely unchanged with most of the spotlight on the Asia – Europe route. However, with the TSA announcing a significant rate restoration program on the Transpacific trade lane, we saw the curve pick up slightly in value. This would reflect the lack of confidence of market participants’ to see a successful GRI be implemented on the 15th Mar given there is still overcapacity.
For the US shippers who are currently going into tendering their annual contracts for the 2012-2013 period, it is worthwhile pointing out that freight rates for May 12 – Apr 13’ in the paper market is trading at $1816/feu, a 0.4% discount to the current spot market. If the proposed rate increases by the TSA go through, rates will be $2,624 by May, which is a 44% premium to spot. The combination of a floating rate or index-linked service contract and hedging using container derivatives (effectively locking in a fixed rate for the duration of the contract), not only removes an element of price risk, but allows shippers to plan and budget for their freight rate exposure.
Turning to the physical market comments and the Asia – Europe route and since Hapag Lloyd announced their rate increase of $750/TEU two weeks ago carriers have been lining up to jump aboard the GRI train. Not since the final days of the FEFC have we seen such a bold and unified approach to pushing market rates up. Whether it be through straight freight rate increases or through a combination of GRI and emergency bunker surcharge the net effect is the same – carriers look set to claw back some of the much needed revenue that’s been slipping through their fingers for the past two years. The question on everyone’s lips however, is ‘will it stick’?
Sceptics are quick to point out that following the pre-Chinese New Year surge in volume, general pick up of cargo is slow. It is yet to be seen whether carriers will hold their nerve or not, however all it takes is for one domino to topple…
Others believe that with the support of the NVOs the GRI will stand. Carriers are now in the position where they absolutely have to push for meaningful rate increases, as it’s only the bigger players that can sustain the losses currently being made on each container shipped. Consolidation of carriers in the market would certainly bring more stability to the rate but would ultimately upset the already delicate shipper/carrier balance further.
On the transpacific route and the recent announcement by the Transpacific Stabilisation Agreement (TSA) came as no surprise to many and similar to the rate increases on the Asia – Europe trade lane, many believed this to be a bit too opportunistic (if not comical, as one of our contacts had said).
The proposed 2012-13 Revenue Program is made up of a GRI of $300/FEU effective Mar 15 and then further rate increases of min. $500/FEU for cargo to the US West Coast, and min. $700/FEU for cargo to the US East Coast.
With the TPM Long Beach Conference just days before the rate increase ‘guidelines’ come into effect, it should provide for some interesting discussions.
Speaking to our contacts in Asia, volumes have been falling post CNY and capacity will be brought back post the blank sailings during the CNY holidays. Carriers were successful to implement the RRI (Rate Restoration Initiative) earlier in January, and whilst the first round of GRIs in March may well go through, many people are sceptical as to how long it could last given there is still a demand-supply imbalance in the market.
Thanks for listening