Fuel now counts for 70% of costs on Asia-Europe: Alphaliner

Singapore: The latest report on Asia-Europe trades issued by French box watchers Alphaliner makes for grim reading.
Carriers in the Far East-North Europe trade are facing 'some challenging times with slowing growth, new capacity additions, rising fuel costs and a weak economic outlook all coming together as the trade faces an impending removal of their anti-trust immunity in Europe' the report warned.
The survey AXS Marine carried out reveals the following key developments on the Far East-North Europe market:
o     Demand growth on the headhaul westbound leg based on conference carriers' liftings have slowed down from 17.0% in 2007 to only 3.3% in the first seven months of 2008, after adjustments for membership changes in the FEFC are taken into account. Eastbound volume growth is negative in the first half at -4.4%.
o     Forecasts for demand growth in the Far East-North Europe trade have slowed considerably with most recent independent projections for the westbound trade at only 1.7% in 2008 and 2.8% in 2009. This is significantly down from earlier projections of 9-16% growth for the 2008-2009 period.
o     Capacity in the trade has grown by 14% since September 2007. However, between May to September 2008, capacity growth have stagnated.
o     Despite the capacity stagnation, utilisation levels on the westbound leg during the 2008 peak season has fallen to its lowest levels since 2003. 3rd quarter utilisation have fallen to 92% from the average of 97% achieved during 2003-2007, further signalling a worsening in trade conditions as demand decelerates.
o     A further 640,000 teu is expected to come on stream for deployment on the Far East-North Europe trades by the end of 2009. This represents 28% of current capacity.
o     The additional capacity could lead carriers or non-operating owners to lay-up ships if demand conditions do not improve. AXS-Alphaliner estimates that between 60-70 ships of 6,000-9,000 teu could be surplus to demand if world seaborne trade stagnates, before allowance for extra slow steaming.
o     An additional 24 vessels have been deployed in the Far East-North Europe trade over the last 12 months adding 235,000 teu of shipboard capacity to the trade.
o     Slow steaming has absorbed 17 ships for 110,000 teu. 17 services have been extended by one week and the average duration of a Far East-North Europe rotation has increased from 8.2 weeks to 8.7 weeks within the space of 12 months.
o     Slow steaming could absorb another 80,000-90,000 teu if the trade fails to pick up in 2009.
o     Global container trade has to increase by around 12% in 2009 to absorb the extra capacity to be delivered by shipyards.
o     Fuel costs currently constitute 70% of the running costs of a Far East-North Europe 8,500 teu loop, up from 45% in 2004.
o     Alphaliner estimates that the extension from 8 to 9 weeks of a Far East-North Europe 8,500 teu loop generates savings of USD 48m per year on ship operating costs alone, based on bunkers at USD 500 per ton. The figures go down to USD 38m when container costs are included.

The survey also examines the exposure of the carriers in the trade, with declining margins expected to affect carriers overall profitability. It suggests that carriers such as CMA CGM and MSC are the most exposed in terms of capacity deployed on the Far East-North Europe route as well as exposure to capacity growth through committed newbuildings. They could be most affected than other carriers if the trade takes a further downturn.

In addition to this, the repeal of the block exemption for liner conferences in Europe on 18 October 2008 will lead to a new regulatory regime for carriers operating in the trade. The majority of the carriers have also announced the new surcharge tariffs that will apply following the abolition of the FEFC conference tariffs that have governed the trade since 1879. Alphaliner's survey on all the new tariffs reveals some interesting new developments:
o     New Terminal Handling Charges (THC) announced are higher across the board. The average increase for main European ports ranges from 14% for the Netherlands to 47% for UK ports. The increases were as high as 71% depending on individual carriers surveyed.
o     New BAF and CAF charges will be applied. Only one carrier have given formula details for BAF calculations but overall charges remain non-transparent.
o     A minority of carriers are applying lower BAF charges for the eastbound trade, this represents a departure from the traditional treatment of BAF. This may lead to rate gaps between carriers and a potential trend towards all-in rates.
For more information go to www.axsmarine.com [2/9/08]

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