Shipping lines cut prices to keep afloat

By Yoke Har Lee

Competition among shipping lines is likely to heat up this year, as excess capacity forces rates down.

This is particularly true in the New Zealand-Asia trade.

Some shipping companies have been building larger and larger vessels, meaning more capacity for a market whose growth has been modest at best.

Cosco New Zealand's general manager, Stuart Ferguson, told the Business Herald: "It is fair to say carriers are going to make themselves more attractive to the customer base."

He said rates had tumbled in the past four years to levels way below many carriers' costs.

"Many [carriers] are still carving market-share action out of those customers with less regard for profitability of those services than for their market-share needs.

"There are many freight rates in the marketplace which do not compensate the line for costs involved in carrying the cargo. There are many pieces of cargo that are being carried still at a loss."

John Robinson, managing director of Norwegian-Swedish Wallenius Wilhelmsen Line, said his company had suffered the effects of share-grabbing.

It had been forced to cut rates after seeing its share of the market suffer.

He said of the New Zealand-Asia trade: "Traditionally what we have seen is they [competitors] have slashed the freight rates. The year before last, we lost 54 per cent of our traditional container cargoes into Southeast Asia.

"When new services came in bringing extra capacity into the berth, and then looking for market share, we lost that volume because we wouldn't cut the rates. Last year, we tried to match their rates and regained some lost share."

Rates to South-east Asian markets are said to have fallen about 30 per cent for some companies. The wider New Zealand-American and New Zealand European rates have stabilised but are still seen as weak.

Because of the demands of the market, some carriers have had to do quick rethinks on services that have not attracted enough customers. Cosco is an example.

Industry participants said Cosco had suffered the impact of lost market share after reorganising its service last May, hence last week's announcement of reconfigured services in New Zealand.

From May, the carrier will resume direct service to Japan, operating four of its own 836 TEU vessels and chartering two 1044 TEU ships. (TEU, or 20ft equivalent, means the ships have a capacity of either 836 or 1044 20ft containers.)

P&O Nedlloyd also backpedalled when its five new 2900 TEU ships being phased into the New Zealand-Australia/Singapore and Mediterranean service proved to be too ambitious and had to be redeployed, industry officials said.

Some of the new services or changes announced in the past 12 months include:

* Malaysian International Shipping Corporation and its partner Pacific International upgrading their South-east Asia-New Zealand service to a weekly, fixed-day service. The service will add two new ships to the present 10-day frequency service, bringing to six the vessels used to serve the trade.

* New Zealand/North Asia conference lines adding a fixed-day, fortnightly call at Tauranga to other port calls in New Zealand.

* Tasman Orient Line reintroducing direct port calls at Timaru and resuming direct services between New Zealand and North Asia.

* Maersk announcing in November that it would add a fortnightly call in Timaru. It would also use larger new vessels to service the New Zealand market.

* New Guinea Pacific Line announcing in November that it was adding a fourth ship and extending its service to New Zealand.

All the new services will mean additional capacity this year far exceeding demand in the New Zealand market, industry insiders say.

P&O Nedlloyd's managing director, Gary Quirke, said: "Basically most of the lines have been sensible about the rate position and the market position. However, I would suspect one or two would want to increase their market share, and that would destabilise the market.

"One of the important issues is with reinvestment - whether lines will continue to maintain their commitment to reinvest based on the commitments that there are today."

However, Cosco's Mr Ferguson reckoned that companies would be forced somehow to protect their bottom line.

"They will be taking fairly firm steps, if not aggressive steps, to ensure that overall their activity in the marketplace is profitable, or at minimum at break-even place."

Port of Tauranga's chief executive, Jon Mayson, was not complaining. The decision by carriers to compete, by adding port calls to capture primary produce and dairy trade, has led to new calls at his port.

P&O Nedlloyd's Mr Quirke was also sanguine, saying global trade was seeing healthy growth.

"The view is that trade growth is outstripping the rate at which new tonnage is going in. There tends to be high profile on new vessels and so forth, very low profile on scrappings.

"I think we did see some signs last year of some sense coming into the marketplace, in terms of some rate increases being applied.

"Only time will tell if it will stick, or if people will weaken under pressure."