Tuesday 22nd Aug 2017 - Logistics & Supply Chain

Does transparency mean lower cost?

The EU agreement to improve the transparency of the container rates has been welcomed by shippers.

Malory Davies FCILT, Editor.

Malory Davies FCILT, Editor.

Chris Welsh, the Freight Transport Association’s director of global and European policy, said: “We welcome the Commission bringing this important case on liner shipping prices to a satisfactory close. “We look forward to a new clear and open approach by the shipping line operators which will remove the need for our members to resort to court proceedings for competition damages.”

And Nicolette van der Jagt, director general of CLECAT, the European freight forwarders association, said: “Changing the culture of the shipping industry after three centuries of living and breathing the ways of the conference system was never going to be easy. Following the demise of the liner shipping block exemption, which was supported by CLECAT, the Commission started an investigation on the apparent similarity of many of the decisions by a number of shipping lines over rate increases, imposition of surcharges and the management of capacity.”

Of course, improved transparency is always welcome – but will it have a significant effect on the rates that shippers actually pay? After all, the lines are operating in a very tough market at the moment.

Maersk, the world’s largest container line, recently told shareholders that its average freight rate had declined by an average of 1.9 per cent every year since 2004. Supply has outgrown demand every year for the past nine years (except for 2010 when excess capacity was absorbed by slow steaming). But the forecast is that supply will continue to grow faster than demand.

Declining freight rates meant that Maersk’s underlying profit of $1.3bn in 2015 was well down on the figure of $2.2bn for the previous year. Revenue fell to $23.7 bn in 2015 from $26.9bn the year before.

Earlier this year Drewry, the shipping consultancy, suggested that the decline in global container shipping freight rates was as great as nine per cent last year. It forecast that carrier unit revenues will decline further in 2016, albeit at a slightly slower pace. The prospect of growing losses could lead to further consolidation among the container lines, and more concerted moves to reduce capacity.

The continued weakness of container rates means that it will be difficult to determine how much impact the EU’s additional transparency has actually had.

 

 

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