Fruit Exporters Hit By Reefer Rise


As they stated they would in 2012, a number of container-shipping companies have introduced considerable rate increases on their reefer containers at the start of 2013. BMI notes that this is already being felt by shippers, with Pakistani fruit growers looking to the government for subsidies in order to cope with the extra cost. How long the rate hikes hold at this level is open to question given how recent rate increases in the container-shipping sector have fared. However, it seems likely that they will stabilise at a higher level than they had been in 2012 given capacity-curbing actions being taken by the firms.

In Q412, market-leading container shipping company Maersk Line came out and stated that it was planning on introducing a US$1,500 rate hike on its forty-foot refrigerated containers (reefers) from January 1 2013, an increase of 30%. Maersk Line CEO Søren Skou said in September that the rate hike was essential to fund investment as the sector has not kept pace with inflation and bunker costs. Over the past seven years, reefer rates have increased an average by 2% per annum, while inflation over this period has ticked up by 4% and bunker costs by 18%. Skou added: 'During the last seven years, our reefer rates have not even covered the rate of inflation.' As is often the case, Maersk Line was followed by a number of other leading shipping companies: the world's number two and number three, Mediterranean Shipping Company (MSC) and CMA CGM, have also introduced rate hikes of US$1,500 per reefer, as have COSCON and APL.

Container Lines' Reefer Rate Increases
Date Amount
BMI
Maersk Line January 1 2013 US$1,500
MSC January 1 2013 US$1,500
CMA CGM January 1 2013 US$1,500
COSCON January 1 2013 US$1,500
APL January 7 2013 US$1,500

The effect of this is already being felt by shippers: in Pakistan, exporters of the kinnow fruit (a US$40mn to US$50mn business in the country) are appealing to the Pakistani government for aid as they feel the impact of the rate rises. Freight from Pakistan to Malaysia has risen to US$3,400 per forty-foot reefer with the US$1,500 increase; freight to Jeddah has risen to US$3,600. CEO of Pakistani fruit-exporting company Harvest Tradings, Ahmad Jawad, said: 'The Ministry of Commerce should grant a subsidy on exports of kinnow after shipping companies are to increase freight charges, keeping in view the abnormal growth in costs. The increase in freight charges will prove another suffering for kinnow exports.' The industry had already been hit by increased charges on exports to Russia and by a recent 11-day truckers' strike which disrupted supply lines.

Should the rate increase remain at this high level then it is likely we will be seeing many more shippers of fruit and other commodities that require refrigerated transport seeking assistance from subsidies as they struggle to cope with the 30% hike. However, there is some cause for hope for the shippers. Throughout 2012 we followed rate hikes and surcharges implemented en masse on the same date by container-shipping companies looking to improve their bottom lines and return to the black - container shipping rates have been at challengingly low levels since the global economic crisis as the growth of the global fleet has exceeded demand growth - and the likelihood is that there will be come retrenchment of this rise in the coming weeks ( see our online service, December 24 2012, 'No Christmas Present On Asia-Europe', for our most recent examination of this trend).

Nevertheless, we do expect some proportion of the rate hike on reefers to stick given the actions being taken by Maersk Line and other companies to control the capacity in the market. Maersk Line stated in September 2012 that by the end of the year it would have scrapped 25,000TEUs' worth of reefers, more than 10% of the company's existing reefer capacity. Hynndai Merchant Marine announced that from January 1 2013 it would halt its reefer service connecting the US East Coast with Asia. With a tighter market it seems that shippers will have to get used to paying more for their refrigerated cargos.

This article is tagged to:
Sector: Freight Transport, Shipping
Geography: Pakistan, Pakistan, Pakistan, Pakistan