Without Rate Increases, Further Bankruptcies and Consolidation Ahead for Box Carriers: Former HMM Exec

David Arsenault, HMM's former CEO for the Americas, suggests new mega alliances must ensure container freight rate increases.

David Arsenault, Hyundai Merchant Marine's (HMM's) former CEO for the Americas, suggests that if global container shipping's new mega alliances that are set to launch in April do not ensure freight rate increases, the industry could see more bankruptcies and mergers, JOC reports.

Arsenault says that, if the alliances, which are set to control 91 percent of the vessel capacity in the trans-Pacific, exercise discipline to match supply with demand, higher freight rates will be realised under the new service contracts in the eastbound Pacific, effective May 1.

With carrier cost cutting efforts noted to have likely been extended as far as possible, the key to carriers' improved profitability now is said to be higher freight rates.

Supported by stronger spot rates over the winter months, carriers are noted to usually be able to negotiate for higher contract rates for the May 1 to April 30 contracting year.

"If this doesn’t work, you won’t like the next step," said Arsenault to beneficial cargo owners (BCOs), indicating that rapid consolidation in the industry would result in a handful of highly powerful shipping lines capable of altering freight rates at will.

According to a recent JOC survey, BCOs are preparing for service contract rates to the West Coast this year of approximately $1,500 per FEU. 

While Arsenault agrees that such rates sound about right, he adds that "all it takes is one or two carriers to cut the rates" for the market to collapse.

Arsenault says Hanjin's industry-altering collapse should serve as a wakeup call, suggesting that if freight rates collapse, more carriers will go bankrupt and remaining carriers will consolidate their power, enabling them to dictate pricing.