Some ocean trades stabilising, but transatlantic rates still falling
Container spot rates from North Europe to the US east coast dipped below $4,000 per ...
First quarter losses for the container shipping industry have continued to pour in after Israeli line Zim and Chilean carrier CSAV both reported first quarter results that were in the red, albeit at lower levels than last year.
Both issued results at the same time as larger carriers in the Asia-Europe trade began to announce a set of new freight rate increases in a bid to stem further losses, with 1 July the watershed date.
Mediterranean Shipping Co said it was looking to implement a $1,000 per teu general rate increase on that day, while OOCL announced a $975 per teu increase and CMA CGM-owned Australia National Line announced a marginally less drastic $775 per teu increase – one would expect its parent company to look to implement a similar increase.
These follow an announcement from Maersk earlier this month that it is looking for a $750 per teu increase on the same date, which itself followed Hapag-Lloyd’s double-dip peak season surcharge/GRI announcements.
There continues to be, however, widespread scepticism among ocean freight buyers that the rates hikes will substantially stick, given the remaining overhang in capacity.
In their recent first quarter results, both Hapag-Lloyd and Maersk reported improved returns achieved on the back of sustained cost-cutting programmes, and this week CSAV followed suit.
Posting a first quarter of loss of $96m, CSAV chief executive Oscar Hasbun claimed a substantial reversal of fortunes was underway as the carrier’s cost restructuring programme takes effect.
In the first quarter of 2012 it posted a $205.2m loss, which meant it had achieved a 53% year-on-year improvement in earnings, and Mr Hasbun indicated that CSAV too would be looking to hike rates.
“What we consider to be most important are our long-term prospects. For another consecutive quarter, CSAV has a more efficient costs structure compared to the company’s historic performance.
“The industry’s situation continues to show volatility as a result of oversupply and global economic news so, as we have anticipated, the year continues to be a challenge. Nevertheless, we expect that the weak financial position of most of the industry players will be a catalyst for permitting rates to recover from their present level in the next quarters,” he said.
The cost restructuring exercise is centred on a long-term change to its fleet strategy, which had hitherto relied on chartered vessels. However, in April its board proposed adding $500m to its capital structure with a view to partly financing a recent order placed for seven 9,300teu vessels, as well as paying off a debt facility early and thus saving on future interest payments.
Due to be delivered at the end of next year, the addition of the seven ships will see the proportion of owned vessels in CSAV’s fleet move from 37% to 55%. At the beginning of 2011, when the line was veering towards bankruptcy, it owned just 11% of its fleet.
CSAV’s results were further impacted by a $40m provision for possible costs relating to the ongoing investigation into anti-cartel behaviour in the car-carrying shipping sector. It is one of several companies under investigation.
Meanwhile, Zim also saw its results improve in the period, posting a loss of $111m compared with the $162m it lost in the first quarter of 2012.
It attributed the improvement to marginally higher freight rates and marginally higher carryings – a not inconsiderable achievement given the current environment and the sustained overcapacity on many routes.
Total revenues came in at $918m, compared to $865m last year, and it saw a 5% increase in volumes from 570,000 containers to 602,000. Average revenue per container increased 4% to reach $1,282.
Nonetheless, the line is far from out of the woods. Earlier this month Standard & Poors further downgraded its credit rating following a new debt restructuring plan that the line presented to banks, saying that although the move will likely alleviate the immediate pressure it will do little for its longer-term prospects.
“In recent months, company management has taken several steps to improve its liquidity, which, we believe, will allow Zim to meets its obligations up to mid-2014. However, given the continued weakness of terms of trade in the shipping industry, we believe the company will face difficulties meeting its obligations in the second half of 2014,” the ratings agency said.
In a further move to build up its balance sheet, Zim has also revealed that it is in talks to divest its shareholding in two companies that own container manufacturing plants in China. It has entered into sale negotiations with an undisclosed third party which would raise $50.5m, and provide an expected capital gain of $31.5m.
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