Falling cost of sea freight is good news for tyre trade

It’s official – the UK has avoided entering into a triple-dip recession. Figures published by the Office for National Statistics show that, following the 0.3 per cent contraction that was witnessed in the last three months of 2012, the UK economy expanded by 0.3 per cent in the opening quarter of this year. At the start of May, Rob Shelley, founder of Suffolk-based freight forwarding specialist Maritime Cargo Services, spoke with Tyres & Accessories about this development and other issues influencing the cost of shipping tyres across the ocean.

Quite how this first quarter growth will impact the tyre industry in 2013 has yet to be played out. “With regard to the UK’s ongoing economic struggles, I think we can all be forgiven for grasping the smallest chink of light at the end of a very long, dark tunnel,” Shelley comments. “So the news that the threat of a triple-dip recession is over, at least for the time being, has almost put a spring-like step into the shoes of many business analysts. Indeed, economists from Goldman Sachs are forecasting that the second of the two recessions Britain experienced after the 2008 crash is likely to be revised away in due course, suggesting the UK’s post-crash performance has been less dismal than previously believed.”

Shelley also notes that the cost of moving tyres and wheels between Asia and major European markets such as the UK continues to vary on a shipment by shipment basis. In terms of tyre transportation to the UK, the biggest cost comes from the General Rate Increases (GRI’s), namely the adjustment of sea freight charges by shipping companies. “This rate fluctuates all the time; for a 40’ container it can cost anything from US$1000 to over $5000,” he shares. “However, at the time of going to press it was $1750 for base ports, which is lower than it has been for over a year.” Plans were afoot to increase this; Shelley points out that most shipping lines intended to bring in a GRI increase of around US$500 per 20’ container in April, following similar sized upward adjustments levied in mid-March; “however, due to delivery of enormous new vessels with more on the way and stagnant growth in the container market, they simply lost their nerve. This is bad news for the carriers, but good if you’re shipping tyres and wheels to the UK.”

Other cost factors

Another variable that tyre importers must contend with is the cost of quay rent and demurrage. Quay rent is the charge made when containers are not taken off quay on time, therefore incurring costs to the port for a parking space (quay rent): “The knock on effect of this is that there is then a further charge from the shipping line for overdue rental of the container (demurrage).  This is quite often the elephant in the room adding, sometimes, considerable and unexpected costs.”

Finally, the scrapping in March of September’s planned 3p fuel duty increase has obviously been welcomed by freight forwarding agents such as Maritime Cargo Services. “This is good news for tyre wholesalers as it will have a knock on effect, both on the transportation costs of importing containers, and on distribution costs,” Shelley observes. “Our trade association, the British International Freight Association, has long been pressing the Government to eliminate rises for the rest of this parliament, and we are hopeful that this latest fillip is a sign that there won’t be any more increases.”