Asia-Europe GRI begins to erode

11/13/2012

The general rate increase (GRI) implemented by a majority of ocean carriers at the beginning of the month on Asia-Europe headhaul routes, is already showing serious signs of erosion, as overcapacity and weak demand continue to weigh on the trade

Lars Jensen, CEO at SeaIntel Maritime Analysis, said that while the “success rate” for the GRI had been 83% directly after its implementation, carriers had since lost 25% of the increase in the space of a single week. 
 
“Their problem is that it is extremely difficult to maintain the North Europe increase when the increase to the Mediterranean failed completely,” Jensen told Lloyd’s Loading List.com

“It’s likely that the North Europe increase will be eroded quite rapidly,” he predicted. 
 
As for the reasons behind the failure to push through the GRI on Asia-Mediterranean routes, Jensen said: "It has clearly been impacted by the fact that the carriers did not stand together to maintain discipline in getting the increase and instead have turned to rate-cutting."
 
Martin Dixon, Research Manager, Freight Rate Benchmarking, at shipping consultant Drewry, said: “Based on the rise recorded in the World Container Index (WCI) reading for the Shanghai-Rotterdam trade in the first week of November, we reckon that carriers achieved around three-quarters of their intended GRI that week. 

“But rates fell back last week by 2.2% and we expect further falls in the weeks ahead.”
 
He explained that this was because carriers had not removed sufficient capacity to restore load factors to levels that would ensure rate stability. 
 
Erosion in the 1 Nov GRI contrasts sharply with MSC’s  announcement last week of a US$600 per teu increase from mid-December on routes from Asia to ports in northern Europe, the Mediterranean and the Black Sea.
 
David Barnes, a container freight derivatives broker at Clarkson Securities, argued that MSC’s logic with a December hike was probably to prevent rates from dropping too far at the end of the year during the typical demand slowdown.
 
“They will need the other carriers to join them in the GRI to maximise the chances of its success in December.” he said. 
 
Jensen said the prospect of other carriers following MSC’s lead in attempting to raise rates in December was “difficult to call at this stage”. 

However, Drewry’s Dixon expects this to happen. 

“But unless further action is taken to address over capacity any achieved uplift in rates will prove short-lived,” he warned.