We are at the peak of current cycle: JP Morgan

Hong Kong: A peak surcharge was introduced today on the Asia-Europe box route of US$135 per teu effective immediately through to the end of October.
Commented investment bank JP Morgan in a research note: "This rate increase, the fourth one this year, underlines the strength of the Asia-Europe trade, which accounts for about 23% of the volume of Asia Pacific container lines."
The bank observed: "The current Asia-Europe west bound freight rates are already very close to the peak of 2004 at about US$1,850 per teu, implying almost 20% Y/Y increase on the blended average Asia-Europe rate. Together with YTD 20% Y/Y volume growth, we estimate that the Asia-Europe trade has performed substantially better than our previous forecast."
On a more bearish note JP Morgan warned about the weakness of the transpacific market, which still represents about 34% of the volume of Asia Pacific container lines. "YTD data from the US ports indicate that import volume grew only 1.2% Y/Y, which is far below the consensus," JP Morgan stated.
"We are concerned that the Asia-Europe volume might not continue to grow 20% Y/Y and believe this [peak surcharge] should be the last rate increase of the current cycle. We maintain our view that we are already at the peak of the current cycle and the current valuations of the container shipping names cannot be substantiated by their fundamentals," the bank concluded.  [01/08/07]