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Shippers and Forwarders to Adopt Two-Stage Rate Increase Strategy

According to the recent report of sea cargo news, a great decline was seen in trade lines of containers even after applying first general rate increase (GRIs) in this week. As trade traffic did not recover even after an increase, container lines belonging to Asia-Europe are thinking to apply a second general rate increase at the end of this month. They came to such decision after the failure of consecutive general rate increase (GRIs) applied for three times. It is announced by CMA CGM that it is going to implement additional rate increase of 500 dollars per teu between the Mediterranean, North Europe, and Asia which is going to be effective from September 20. While China shipping is going to introduce additional GRI of 525 dollars per teu and is coming into play from the same day. It is advised by API to customers in last month that there would be additional rise of 500 dollars per teu in GRI from 20th September adding to the previous value of GRI i.e., 950 dollars per teu which is effective from 1st September.
It is from the sea cargo news report that after application of average value of GRI i.e., 1000 dollars per teu this week, spot rates at Shanghai Containerized Freight Index (SCFI) have increased by 168 dollars per teu for Mediterranean ports and 172 dollars per teu hike is seen for North Europe. There are some expectations to hike more, but history is opposite to this expectation. Previous week records demonstrate the sudden movement of GRIs ranging at 122 dollars and 248 dollars per teu. While SCFI recorded 763 dollars per teu for North Europe and 865 dollars per teu for the Mediterranean recorded for the same period. These records show the fall of profits to some extent compared to profits recorded in the first half of the year. Due to decline in demand, spot rates gained more prominence which became more important for shippers and forwarders which help them in improving the market criteria. They are using bigger ships as their hiking capacity to meet more profits. Though carriers refuse to the fact of percentage divulge of spot cargo, it is revealed by a container line source that there is over 50 percent increase seen in summer spot cargo rates while it is around 25 percent last year.
Shippers and forwarders are paying higher rates for annual contract cargo every year. This year, they are thinking to demand reduction of higher rates, depicting the low demand criteria of the market. Already some shippers and forwarders have handled their business to other carriers at cheap prices. In the past, Asia-Europe carriers are highly protected from this volatile situation by using a contract cargo but it did not last for a long time due to increase in freight rate index. The impact of spot rates can be easily understood by glancing at second quarter results of Hapag-Lloyd which shows a decline of 220 dollars per teu in Asia-Europe rate, compared to previous years. If fuel prices did not get dropped by 50 percent in a right time, it would have pushed the German Carrier into drastic conditions of loss. After consecutive failures of GRIs applied in the months of July, August and may be September, container lines are trying to propose additional GRIs further to implement in the mid-month.

Source From: http://theloadstar.co.uk/are-container-shipping-lines-switching-to-a-two-stage-rate-increase-strategy/