How much? Freight rates double

The world’s largest shipping company, Maersk, has just announced that its container line made a loss of US$537 million last year and is unlikely to turn a profit in 2012. The vast majority of its competitors have posted similar losses and it seems like they have now decreed that enough is enough and across the board rate increases have been announced. And we’re not talking single percentage point increases. Rather rates are said to be almost doubling their previous levels.

According to Maritime Cargo Services’ Rob Shelley, we can only imagine what affect this will have on the retail price of tyres in an already highly competitive market with ever tightening margins, but we can safely assume that its impact will not be insignificant.

Shippers and freight forwarders alike have criticised the scale of the increases as the major lines attempt to break even and, although these controversial container freight rate increases appear to be taking effect right now with shippers having to move cargo today, market commentators are uncertain over how successful the price hikes will ultimately be. The issue is further complicated given the huge number of new cargo vessels that were delivered last year and are under construction – equivalent to about a third of the existing global fleet. How can these rate increases be sustained with so much spare capacity coming on stream is a question that many in the industry continue to ask?

Given all this, analysts have suggested the industry will remain unprofitable for some time yet and point out that the lines have previously tried and failed to implement large price increases. And that, given the law of supply and demand, a rate increase doesn’t make sense. But the shipping industry is not always a rational market so watch this space.

The problem of piracy

It’s not difficult to appreciate what most of the governing factors are in setting freighting rates. Aside from the usual – albeit recently diminishing – margins and sometime huge profits that the shipping lines have to make to stay in business, the massive, and ever increasing, bunker (oil) costs, staff and the construction costs for those huge container ships that ply their way from one side of the world to the other are the most obvious.

But something that is maybe less expected and much more of a recent phenomenon is the significant role combating piracy on the high seas is having to play – and cost. It’s a growing problem and one that is now not restricted to vessels far from shore. Only this month, armed pirates raided a cargo ship which was actually anchored in a Nigerian port. Having ransacked the ship they made good their escape taking several of the ship’s officers with them.

All of this is finally having some traction at the highest levels with Prime Minister David Cameron himself joining Ban Ki-moon, Secretary-General of the United Nations and US Secretary of State Hilary Clinton at a recent international conference on piracy where he pledged a crackdown on Somali pirates and their ‘kingpins’ who demand ransoms for cargo vessels and their crew.

Amongst other important developments, Cameron also announced the creation of an international taskforce on pirate ransoms and a Foreign and Commonwealth Office (FCO) statement said: “This will bring together experts from across the world to better understand the ransom business cycle and how to break it. We will be working with international partners over the coming weeks to set out the structure and approach of the taskforce.”

How successful this new era of international cooperation will be is yet to be realised. In the meantime, the cost of attempting to manage and alleviate the scourge of piracy will, ultimately, continue to cascade down the tyre logistics supply chain and hit importers and exporters of tyres and accessories where it hurts most.

Maritime Cargo Services, a Suffolk-based freight forwarder, was founded by Rob Shelley 20 years ago. Through building relationships with tyre-based companies importing products into the UK, it counts itself among the country’s leading freight forwarding specialists in the industry. Working closely with over 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.