27-12-2016

Container Shipping Costs Skyrocket after Hanjin Collapse

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Container shipping costs, which radically plunged, now shows signs of recovery after the fall of Hanjin Shpiping Co. The strategy of Maersk Line, the world’s largest shipping group which cuts down shipping fees until its competitors fall down and pick fruit when they are liquidated, seems to be working. As most shipping volumes that Hanjin Shipping lost have passed to Maersk and Mediterranean Shipping Company (MSC), all South Korea, which once considered itself as a global leader in the shipping industry, can do is watch “a feast of winners” caused by the rise in shipping charges.

According to Shanghai Shipping Exchange (SSE) on December 21, the Shanghai Containerized Freight Index (SCFI), a representative measure that tracks spot rates of shipping containers, stood at 824 as of the 16th, up 26 points from the previous week. The figure surged to a whopping 228 points, or 38.3 percent, from 596 at the end of August when Hanjin Shipping was about to go into receivership.

The spot rate from Asia to the U.S. West Coast, which was a main course of Hanjin Shipping and Hyundai Merchant Marine (HMM), the nation’s two biggest container lines, was recorded at US$1,608 (1.94 million won) per forty-foot equivalent unit (FEU), while Asia-U.S. East Coast rate was US$2,627 (3.16 million won). The rates of both routes grew 16.4 percent and 12.3 percent from those at the previous week.

Container spot costs skyrocketed once right after Hanjin Shipping filed for court receivership. At that time, experts said it was a temporary market recovery due to logistical disturbance. In fact, the SCFI increased from nearly 600 just before Hanjin Shipping’s collapse to 800 after the Hanjin announcement to file for receivership, and then it decreased to 700 later again. However, the figure rose to 885 in October as at the end of year is approaching.

An official from the shipping industry said, “The SCFI, which is a reading of overall spot ocean freights, is still remained at low compared to some 1,500 four to five years ago, but it is rapidly stabilized as Hanjin Shipping recently got out of the shipping market.”

Foreign shipping companies are highly likely to receive all the fruits caused by the rise in spot rates. Hanjin Shipping injected the freight space of 20,355 TEU, which the fourth largest after China’s CSCL, Taiwan’s Evergreen and Danmark’s Maersk, to the U.S. routes last year. However, most of its freights passed to foreign shipping lines as the company failed to keep business due to its court receivership.

According to Piers, the leading provider of global maritime trade data, Maersk handled 30,890 TEU of freights a week on average last month, up 35.7 percent from a year earlier, while MSC shipped 27,146 TEU, up as much as 49.7 percent over the same period. Although HHM’s volume of container traffic also increased by 45 percent during the same period, Maersk and MSC took about 80 percent of Hanjin Shipping’s freight flows.

In addition, rising shipping spot rates, which is directly related to the improvement of profitability, is painful for South Korea that disassembled Hanjin Shipping, once the world’s seventh largest shipping company and the nation’s largest shipping company.

Another official from the shipping industry said, “The government succumbed to Maersk’s strategy to lead the game of chicken. Even after the global shipping market picks up, major shippers already have low confidence in Korean shipping firms. So, it will be difficult to get back to the levels in the past in a short period of time.”

Source: Business Korea

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