Tyre Freight Rates: Navigating Stormy Waters

At the end of January certain shipping companies indicated that they are considering what is known as “super slow-steaming” on the Asia-Europe route. This news, which potentially extends the already long time it takes for Far Eastern tyres to go from “on the water” to “in the warehouse,” serves to highlight the complicated business of getting tyres produced on the other side of the world from A to B.

In this instance Jean-Louis Cambon, the head of Michelin’s Ocean Management Committee, pointed out that this news will have a significant effect on warehousing logistics: “When carriers moved from eight to nine ships per loop, producing an extended transit of 3.5 days per direction…we found it acceptable and could integrate it in the stock levels as it came along with the ‘guarantee’ of a better schedule reliability…[Referring to the latest announcement however] it follows that stock levels will suffer quite a lot, and looking at it from a total cost perspective, this will cost a lot of money.”

With this in mind, and the potential complications this and other shipping issues can have on the tyre business, this month Tyres & Accessories/tyrepress.com introduces the first in a new series of updates from the international freight forwarding sector produced with the cooperation of Maritime Cargo Services’ Rob Shelley. In his words there has rarely, if ever, been a more “turbulent and volatile period in the international freight forwarding sector.” And this is said to be having “a significant follow-on affect on the tyre industry.”

Pricing is a key issue, with all of the leading shipping lines looking to increase rates in the next month or so by at least 20 per cent as they try to claw back some of the income lost over the last year. “It’s impossible to say how this will play out over the next few months but one thing’s for sure: shipping rates are increasing dramatically at the moment and will only stabilise as and when more capacity – in the form of the fleets of currently mothballed ships – are brought back on stream,” Shelley explained.

Ocean carriers saw revenues drop by 40 per cent and lost over $11 billion in the first nine months of 2009 – Maersk alone lost almost $1.4 billion. According to Shelley, the only reason some shipping companies are still going is because of similar, albeit less publicised moves to the support leant to the banking sector: “Several carriers would have gone to the wall if major benefactors and governments around the world hadn’t moved to prop them up.”

Amongst some of the shipping industry’s leading ‘thinkers’, there’s a growing feeling that one or two of the major carriers should have been allowed to fail. In one fell swoop that would have removed excess capacity and allowed load factors and freight rates to improve and prepared the ground for longer term recovery.

Tyre suppliers should be building price increases into their budgets

Although that didn’t happen, the aforementioned mothballing of ships is having a similar affect and is likely to keep rates high until that additional capacity is freed up. “Eventually market forces will dictate and the fleets of ships semi-permanently moored off places such as Singapore will have to be released to meet increasing demand for capacity. Ultimately that will be good for all ensuring the survival and sustainability of everyone in the logistics chain whilst bringing some much needed stability and maintaining commercial competitiveness. But, in the meantime, tyre suppliers should definitely be building price increases into their thinking and budgets for the next year,”

Two of the biggest issues affecting the sector which are also responsible for pushing up freighting rates are the growing issues of piracy and, of course, the price of oil. BAF, or Bunker Adjustment Factor, is the acronym by which fuel surcharges will fluctuate at a moment’s notice and new insurance premiums to cover the burgeoning risk of international piracy are being passed onto clients by all of the shipping industry.

In conclusion, Rob Shelly has this advice: “Choose your freight forwarding partner carefully: did you realise that shipping companies are under no obligation to move your containers ahead of anyone else’s? Yours could well be sitting on the quayside whilst those of the ‘highest bidder’ are prioritised. All of the above, combined with the ever increasing complexity of the international wholesale tyre industry, mean that it’s more important than ever for tyre wholesalers to ensure that they’re working with the right freight forwarding partner.”

This information was compiled in cooperation with Maritime Cargo Services. Maritime Cargo Services, a Suffolk-based freight forwarder, was founded by Rob Shelley nearly 20 years ago. Through building relationships with tyre-based companies importing products into the UK, it can now count itself among the country’s leading freight forwarding specialists in the industry. Working closely with 20 major tyre importers, the company manages the customs clearance and delivery of containers to well over 100 tyre warehouses and depots throughout the UK and Ireland.