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Freight prices rocket meaning domestic material price falls likely

Date: Wed, 4 Apr 2012 | Author: Paul Sanderson

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The cost of shipping material to Asia from Europe has jumped in the last two weeks and is likely to keep rising until at least May.

Shipping lines could increase the cost of a container to around $1,500 in the coming weeks, which would represent an increase of approximately $1,000 since the beginning of the year.

Freight Investor Services container freight derivatives broker Steve Phillips said: “Maersk has announced it has suspended routes from Europe to Asia until May, while MSC is putting on various leverage rates. Europe to Asia routes will increase into the next couple of weeks and into the back end of the year, as will LA to Asia.

“We believe this will carry us into Q3 when traditionally prices have tended to go up anyway, so we would not anticipate prices will fall then. Prices will probably increase to $1,000 in May to June on the Rotterdam to Shanghai route, while LA to Shanghai could go as high as $1,200 to $1,400.

“But we are also seeing surcharges on this, so the shipping lines are putting punitive surcharges on particular types of crate. They aren’t increasing the cost of crates as much, but we are seeing more surcharges now as it is a different way to skin a cat.

“So the all-in charge is looking at a price of $1,350 to $1,600 per box.”

SCM has seen emails from shipping lines showing that Maersk has increased its export fuel surcharge from 1 May 2012 to 17.5 per cent from 14 per cent. Seago Line has increased its fuel surcharge to 14 per cent from 10.50 per cent, while NYK from 15 April 2012 has implemented a space freight premium of $150 for a 20 foot container and $250 for a 40 foot container on backhaul routes.

Mark Lyndon Paper Enterprises (UK) managing director Paul Briggs said: “We are seeing all sorts of increases. One liner has an 18-tonne surcharge of $250 so we have to send more than 18 tonnes. While one major shipping line phoned me and said that they will be increasing the price by $100 per box after we had already booked the containers and agreed the price.

“The way the shipping lines have done this has been very unprofessional and there has been no thought about customer service.

“In January, the price was $500 and it could be $1,500 by the end of April. We are worried about how far the shipping lines will take this, and there is a rumour that once it hits $1,500 then they will leave it there, but there is no guarantee on that.

“This will help to keep prices [of material] low. The Chinese aren’t desperate for material as they have got their own tonnes now. Local OCC is going into mills there and they are full. The Chinese have got options now from the domestic market that they didn’t have a couple of years ago.

“We are already seeing that this is having an impact on the price of material in Europe. As long as the freight prices stay the same, then the global market will adjust and prices will fall. It will eventually be alright when all of this settles down, but I am not happy with the way the shipping lines have handled this.”

Another exporter of materials added: “The shipping lines keep putting up the price by $150 to $200 per trip, while also cutting availability of ships. Prices of materials have been flat for a while, and are two thirds of what they were in 2008, but this will see them fall a bit more. It will have a big impact.”

Ecosky managing director Yulong Chen added: “The smaller factories in China have problems because there is less exports going on from there since last summer so there is less demand. At the same time the cost of freight keeps going up and will do so probably until June or July. It might even be as high as $1,500 per box.”

He also warned that Chinese demand would continue to fall this year as growth forecasts have been lowered to 7.5 per cent, which is the lowest forecast for the last decade. While Chinese president Hu Jintao must step down as president next year and general secretary this year, leading to political instability as the successor brings in their own people.  

He said that the Chinese will continue to crack down in imports of low quality material. “The customs are trying to stop lower quality material going into China. It doesn’t matter how cheap the material is, there is an import duty in Hong Kong of £200 per tonne on material, and with these increases in shipping costs, it just doesn’t make it worth it to ship lower grade material.

“The UK needs to find a way to deal with it itself and half of the material is low grade. Following the recession, we aren’t getting the same volume of good material from commercial and industrial waste. So the price is lower and there is a lot of uncertainty.”  

 

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