Skip to comments.Container-Ship Plunge Signals U.S. Slowdown
Posted on 07/28/2011 6:47:20 PM PDT by Vince Ferrer
Plunging rates for chartering container vessels that carry sneakers, furniture and flat-screen TVs may signal a U.S. consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year. Fees for hiring vessels have fallen 9.3 percent since the end of April, according to the Howe Robinson Container Index, which tracks charter rates for a range of vessels. Last year, the index surged 56 percent in the period, as lines added ships on demand from U.S. and European retailers restocking for the back-to-school and holiday shopping periods.
The troubling part is that charter rates are falling in the peak season, said Johnson Leung, head of regional transport at Jefferies Group Inc. in Hong Kong. Sentiment among consumers and retailers isnt very strong. Lines including Hanjin Shipping Co., Orient Overseas (International) Ltd. and Mitsui O.S.K. Lines Ltd. have also delayed the introduction of peak-season surcharges on Asia-U.S. routes by about two months as U.S. unemployment above 9 percent and slowing sales of new homes damp demand. Combined inbound container traffic at Los Angeles and Long Beach, the two busiest U.S. ports, dropped 4.6 percent last month, the first decline since January 2010, according to data compiled by Bloomberg.
The delay in imposing peak-season surcharges shows how dire the situation is, said Um Kyung A, a Shinyoung Securities Co. analyst in Seoul, who cut her rating on Korean shipping lines to neutral from overweight yesterday. The U.S. economy isnt recovering fast enough to help increase demand. China Shipping Container Lines Co., the nations second- biggest cargo-box carrier, fell 6.9 percent, the biggest drop in almost two years, to close at HK$2.17 in Hong Kong. China Cosco Holdings Co., the nations largest, declined 3.7 percent to HK$5.50. Hanjin Shipping Co., South Koreas largest container shipping company, dropped 4.3 percent, the steepest drop in more than two weeks, in Seoul.
U.S. orders for durable goods unexpectedly dropped 2.1 percent in June, the Commerce Department said yesterday, as companies lost confidence in the strength of the recovery.
The cost of shipping 40-foot containers to the U.S. West Coast from China has slumped 42 percent over the past year to about $1,600 per box, according to data from Clarkson Securities Ltd., a unit of the worlds largest shipbroker. Derivatives show the price wont exceed $1,962 before the end of next year.
Concerns about the sustainability of economic growth are also contributing to container lines renting ships for shorter periods. Average charter lengths have declined to seven months from 10 months at the beginning of the year, according to Alphaliner. U.S. retailers have slowed imports after inventories reached the highest since January 2009 in May, according to Commerce Department data. Their container shipments likely declined 0.8 percent from a year earlier in June, and they will probably drop 1.3 percent this month before rising 0.6 percent in August, according to the Washington-based National Retail Federation. Shipping lines are also contending with fuel costs that have jumped 53 percent in a year in Singapore trading, alongside a rise in oil prices, and an expanding global fleet. There were 5,056 container ships afloat at the start of July, compared with 4,968 at the start of January, according to shipbroker Clarkson Plc. Total capacity increased 5 percent in the period to 14.89 million boxes.
Rising fuel costs and declining rates mean that China Shipping will likely report a first-half loss, it said yesterday. Hong Kong-based Orient Overseas last week said the full-year outlook was disappointing. Kawasaki Kisen Kaisha Ltd. (9107), Japans third-biggest shipping line, has also made losses on some container routes, President Jiro Asakura said in an interview last month. Container rates have fallen slightly short of our expectations, he said. The shipping line has plunged 30 percent in a year in Tokyo trading. In Hong Kong, Orient Overseas has slumped 25 percent and China Shipping Container has tumbled 24 percent. Lines including K-Line, Orient Overseas, Mitsui O.S.K. and Hanjin Shipping are seeking to impose peak-season levies of $400 per 40-foot containers for shipments to the U.S. west coast from Asia, beginning on Aug. 15. Surcharges of that size were expected to be introduced June 15, according to a statement last year from the Transpacific Stabilization Agreement. The group, comprising 15 lines, has limited antitrust protection, which enables it to advise on rates and surcharges.
Freight rates may rise later in the year as U.S. retail inventories are still low by historic standards. May stockpiles were 7 percent down from three years earlier. That could help cause retail container imports to jump more than 10 percent from last year in September, October and November, according to the National Retail Federation.
Retailers have pared stock levels as they are so fearful of getting stuck with inventory after losses during the 2009 slump, said Barclays Capital analyst Jon Windham. That means more people will be trying to stuff in cargo later in the year. Shipping lines have also cut services in a bid to boost rates. Mitsui O.S.K. and partners APL Ltd. and Hyundai Merchant Marine Co. suspended an Asia-U.S service earlier this month. Compania Sudamericana de Vapores S.A. has also halted a similar route. A.P. Moeller Maersk A/S, Mediterranean Shipping Co. and CMA CGM, the worlds three largest container lines, also delayed the start of a joint Asia-U.S. service to next year from May, according to Alphaliner.
Overall, shipping lines have cut Asia-Europe capacity by 3.5 percent and trans-Pacific space by 3.9 percent, according to Um. The size of the laid-up container fleet may also more than double to a capacity of about 400,000 20-foot containers by the end of this year from 120,000 boxes, according to Alphaliner.
Still, with the overall fleet expanding as new ships enter service, that may not be enough to revive earnings, Um said.
Any hope of a rebound in the container-shipping industry has been pretty much washed away for this year, she said. Demand hasnt improved much, while capacity and fuel costs have jumped at a much faster pace.
ahhhh soo sad, this also means the factories in China won’t be as busy
And they won't be able to buy our debt.
China’s economic miracle may be about to come off the rails
Funny: this doesn’t at all mention the revival of U.S. manufacturing, sometimes known as “on-sourcing.”
Lots of jobs tied up in moving every one of those containers no matter what they hold. They have to be moved off the ships onto trucks or trains, and those are sent all over the country.
As container traffic drops off unemployment creeps up. And retailers all over the Country are placing orders for Christmas stock right now, so it can be shipped in time for the Holidays...
I was just in NM last week driving along the Transcon rail line that moves these containers to the East Coast. I never encountered one train either east- or west-bound — totally different from just last fall.
China not buying our debt is a good thing. they are already trying to control us
Stories like this just point to how completely one-sided Asian trade with the US is.
Yep - our economy is about to tank again - HARD. Add that to doubt over our debt, and we’re probably going to see interest rates bump up from the current 2% to 5% - and that will seriously spike what little economy is left.
It’s about to get really serious...
The only thing I’ll be buying for “back to school” is a full tank of gas. No money for anything else.