“We have seen enormous rate pressure in the Asia-Europe trade this year, as everyone knows, and that has had an impact on (beneficial cargo owner) rates we negotiated earlier this year,” Kenneth Glenn, president of NOL liner arm APL, said during a Thursday call with investors following its second quarter earnings announcement in which it said it earned $890 million due to the sale of APL Logistics to Japan’s Kintetsu World Express. APL itself reported a profit of $3 million.
Some BCOs choose not to renegotiate rates with carriers if spot rates drop after the contract has been signed, believing a deal is a deal and seeking to build credibility with the carrier that could pay off down the road. Others come back to the carrier if spot rates drop well below contract rates, seeking relief. In that case carriers face the prospect of putting an account in jeopardy if they don’t agree to drop the rates.
Glenn stressed that BCO rates were a minor share of APL’s Asia-Europe book of business, accounting for about 20 percent, reflecting the dominance of forwarders in that trade lane. Spot rates to ship a 20-foot container between Shanghai and North Europe in the week ending July 17 was down 66.7 percent year-over-year, at $400, according to rates pulled from the Shanghai Containerized Freight Index displayed on the JOC.com Market Data Hub. Rates were down 22.8 percent from the prior week.
Glenn said the recent downturn in trans-Pacific spot rates hasn’t impacted its BCO contracts, which account for between 65 and 70 percent of the carrier’s business on that trade. The spot rate from from Hong Kong to Los Angeles in the week ending July 20 was down 32.3 percent year-over-year at $1,218 per FEU and unchanged from the prior week, according to the data from the Drewry Container Freight Rate Insight displayed on the JOC.com Market Data Hub.
The company was satisfied with the result of trans-Pacific contact for 2015-2016, Glenn said during the earnings call in which Singapore-based NOL reported a net profit of $890 million in the second quarter.
The outlook for the Asia-Europe peak season is “muted,” while the forecast for the peak season in the trans-Pacific trade is far more positive, as APL has seen demand up 4 to 5 percent year-to-date, Glenn said. Although the carrier hasn’t yet witnessed a material peak season, it expects a ramp-up in shipments next month and in September, he said. China to the U.S. West Coast volume is down 0.1 percent year-to-date, while volume to the U.S. East Coast is up 8.9 percent in the same period, according to volume statistics from the Container Trade Statistics displayed on the JOC.com Market Data Hub.
That reflects the significant shift in cargo to the East Coast that followed months of severe West Coast disruption tied to longshore labor negotiations that were settled in February. For example, the West Coast commanded a 55.4 percent share of total U.S. loaded import containers in 2013 and 54.5 percent in 2014, according to PIERS, a sister product of JOC.com within IHS Maritime & Trade. So far in 2015, the West Coast’s share has averaged only 50.5 percent, its share has been dropping since March, not recovering as some had predicted it would.
NOL said it has been “traditionally underweight” in terms of trans-Pacific capacity through the Panama Canal to the East Coast because it hasn’t been profitable. But the company plan to deploy larger vessels on the trade lane when the expanded Panama Canal opens in April 2016, Glenn said.
When asked by investors whether it was closer to making a decision on ordering 18,000 and 20,000 TEU vessels, NOL CEO and Group President Ng Yat Chung said the company was considering way to improve its competitiveness and had no new information on newbuilds to disclose. APL has also been the subject of rumors that Singapore state investment fund Temasek is planning to put NOL Group, the parent of APL, up for sale, but NOL said on July 20 that no decision had been made.
