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Fearnley: Price war erupts on Asia-Europe

One of the world’s leading container shipping analysts, Norwegian Fearnley Securities, is certain: The discipline of the global container industry is gone, and the price war that Maersk Line, among others, were hoping to avoid, has broken out once again. Fearnley tells ShippingWatch that the rates are dropping like a rock.

Photo: Maersk Line

The signs in the previous weeks that container rates between Asia and Europe have been dropping are more than just ripples on the surface. According to Fearnley Securities, one of the world’s leading container market analysts, the discipline that was created early in the year by the major container shipping companies is finally gone, and the price war is now raging yet again.

“There is no more discipline. The rates are dropping like a rock now, and the container shipping companies have run out of options for building their economy. It doesn’t look like they’ll be able to slow steam much more than they are doing now. The only solution would be a massive layup of tonnage, and I doubt they’ll be interested in doing something like that right now. It will probably take another rate pressure to get the shipping companies to react. So I find it hard to imagine that we won’t see another price war, which could end up as the factor that forces the shipping companies to rebalance the market,” says Rikard Vabo, chief analyst at Fearnley Securities, to ShippingWatch.

Fear of market shares

The latest rates reported by forwarders in the European market confirm that the shipping companies are having more than a few difficulties maintaining the rate level they agreed upon over the spring. According to the news agency Loadstar, a forwarder based in Hamburg says that several shipowners are undercutting each other in order to secure market shares, and that the price of a 40 foot container from Shanghai to Germany is now USD 2,400. A major British forwarder has been offered a rate of USD 2,200 for a 40 foot container.

Grueling war

After a grueling price war in 2011, the major container shipping companies, headed by Lloyd-Hapag and then Maersk Line, agreed on a rate increase on, among others, the key route between Asia – Europe. The shipping companies managed to get together and increase the rates, but there have been signs over the summer that the shipping companies were willing to go down in price simply to secure orders in a dwindling market.

The most recent figures from Container Trades Statistics, released last week, only served as fuel to a smoldering fire, as the numbers showed that 13.2 percent fewer containers were transported from Asia to Europe in July, significantly less than predicted by SeaIntel and other analysts. SeaIntel believes that a significant capacity reduction is necessary just to create short term balance.

“We’ve seen a few examples of shipping companies withdrawing capacity, such as G6, but it’s far from enough, as these numbers show. For any kind of short term balance, the shipping companies need to withdraw around 40,000 containers per week in capacity,” said partner and CEO of SeaIntel, Lars Jensen, to ShippingWatch last week.

SeaIntel: Shipowners unable to maintain high rates

Seaintel: Rate increases simply a brief respite before 2013

SeaIntel: 40,000 containers in excess per week 

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