Rate Hike Efforts Failing, Current Levels "Unsustainable"

Maersk Line has announced four rate increases this year

In the face of "unsustainable market rates," Maersk Line announced its fourth rate hike this year for shipments from Far East Asia to northern Europe and the Mediterranean, but overcapacity and weak demand are continuing to make rate increases difficult, Bloomberg reports.

"The main cause of freight rate volatility stems from the weakest of the Asian container lines, which are cutting prices the most when they lose market share," said Nils Smedegaard Anderson, CEO of Maersk Line parent company A.P. Moeller-Maersk A/S (Maersk).

"There will be overcapacity in the market for a long time."

The spot rate from Asia to Europe stands at $765 per twenty-foot equivalent unit (TEU), down from $1,501 at the start of August, and may fall to $500 in the next few weeks, shipping data firm Alphaliner said.

The newest Maersk Line rate hike, scheduled to take effect November 1, increases the charge for Asia-Europe shipments by $950.

The new announcement revises a plan to raise the rate by $600 in November and comes on top of rate increases the company made on July 1, August 1, and September 1.

"Maersk Line continues to face unsustainable market rates and the rapid decline of rates in the past few weeks has made it apparent that the previously announced increase of $600/TEU will be insufficient to run the service at financially viable levels," the carrier said.

Robin Byde, an analyst at Cantor Fitzgerald, said the industry is likely to have a disappointing third quarter, typically a strong time of year as goods ship in advance of the winter holiday season.

"I think they've probably overanticipated a big boom in global trade," Byde said.

"There's a lot of capacity around."

Shipping rates rose sharply at the start of July, but they have fallen since then.

Rahul Kapoor, an analyst at Drewry Maritime Equity Research, said a typical increase in shipping before China's "Golden Week" holiday, which runs from October 1 to October 7, failed to materialise.

"There hasn't been a peak season," Kapoor said.

"Normally, around the Golden Week, you see wide scale capacity restructuring, but we haven't seen that this year.

Maersk Line CEO Soren Skou recently said the company misjudged the recovery of the shipping market when it ordered 20 huge Triple E container carriers in 2011.