Rate fluctuations mean it pays to manage tyre freight effectively

Suffolk-based freight forwarder, Maritime Cargo Services is now one of the UK’s leading freight forwarding specialists in the tyre industry, looking after more than 20 major tyre importers, managing the customs clearance and delivery of containers to well over a hundred tyre warehouses and depots throughout the UK and Ireland. The company is at Brityrex as October's issue of Tyres & Accessories went to print, and with wholesalers looking to implement the best strategy possible to achieve better margins in a stagnant market, the price of shipping is an important consideration. However, as cost and confidence continue to fluctuate, CEO, Rob Shelley suggests that predictability is still far from great.

In last October’s Tyres & Accessories, Shelley reported continued high volatility in freight rates, while overcapacity in the global shipping industry was a key driver in the lack of confidence in any short term recovery. And, in Shelley’s words, “nothing much has really changed over the last twelve months.”

The world’s largest shipping company, Maersk, announced in March that its container line made a loss of US$537 million in 2011 and is unlikely to turn a profit in 2012. Along with its competitors, rates were forced northwards, though with the success of this measure in doubt and huge numbers of ships in production, there was a good chance they would come back down sooner rather than later.

“In May the lines were still anticipating and preparing for a peak season and pushing through hefty rate increases; or trying to,” Shelley says. “However, what has actually transpired is that the rate on the key Asia-European routes has dropped by more than a third since May and by just over five per cent in the space of the last seven days [in late September, but indicative overall of the last year].  Volumes have fallen on the routes into Europe and, rather than the usual seasonal surge in cargo, lines have been forced to reduce capacity by delaying or even suspending services.”

Confidence to come back?

Shelley says the future remains difficult to predict, since anticipating accurately what is to come, as with much of what will happen in the global economy, “will depend very much on confidence; which, unfortunately, leads us to another rather gloomy outlook. According to the latest surveys, overall confidence levels of those in the shipping industry themselves fell in the three months to August 2012. The fall, to the lowest figure recorded since the survey was launched in May 2008, comes after three successive quarters of improved confidence. Chief among the concerns raised by respondents to the survey were the glut of new build vessels coming onto the market and continuing uncertainty about the aforementioned global economy.

“At first glance, the threat of ‘over tonnage’ and new building projects would seem incongruous but it can be quite easily explained. Shipping lines are being tempted to look long term and order new ships as building prices hit their lowest level for many years. In addition, shipyards and governments will do everything they can to prevent the closure of yards which creates some very interesting special financing packages aimed at getting owners to order new ships. But, does this mean the market will be flooded with more new vessels, extending the time it will take for the industry to recover?

“Conversely, of course, one could argue that security held in long-term contracts, together with opportunities to benefit from lower new build costs and the exploitation of new government regulations, makes for a healthy outlook.” Of course, this sort of long-term thinking does not come with large measures of certainty. Looking closer to the present, Shelley says the company continues “to await significant economic recovery and with more ships sailing the world’s oceans, container shipping rates will remain under pressure with correspondingly tough times ahead for the shipping industry.”

So what does this mean for tyre wholesalers and importers? It could be argued that all of this uncertainty and in-fighting for market share amongst the shipping lines is actually good news, Shelley suggests. “With estimates that shipping costs typically represent somewhere between three and 10 per cent of the street price of tyres, effective freight management is a hugely important consideration for tyre importers in today’s market. So it pays to make sure that, although no one can predict just what will happen in global freight rates, you are working with an established and experienced freight management partner who can ensure that you are insulated from the worst uncertainties of the sector.”

Related news:

• How much? Freight rates double
• Why choosing the right freight forwarder matters to tyre distributors