January 7, 2013
The general rate increase (GRI) on reefer lines across most routes and shipping companies is set to hit seafood prices, industry players told Undercurrent News.
The reefer base rates are up between $1,000 and $1,500, sources have said, and Maersk Line, the largest reefer shipping firm in the world, increased its base rate by $1,500 per forty equivalent unit (FFE) with effect from Jan. 1 2013.
This translates, on average, to around a 3 cent per pound increase in the cost of moving seafood.
“Freight from Vietnam is up $1,500 per 40-foot full container load to New York, so that works out to close to $0.035 per pound,” confirmed Jim Gulkin, managing director of Bangkok-based frozen supplier Siam Canadian Group.
“All the shipping lines increased the ocean freight significantly from January, 2013,” agreed Anh Kiet, sales manager of Vietnamese firm Hung Vuong Seafood.
“The freight is up around $1,000 and $1,500 for all the destination ports. This may lead to the price of products rising about $3 cents per pound or $6 cents per kilogram.”
Sources from everal different countries, including the US, Argentina and China, have reported rate increases of at least $1,000, and Maersk Line itself announced a $1,500 base rate global increase in October 2012.
One US wholesaler described the GRI as a huge increase, and said that it would be a considerable factor as the company prepared new bids for buyers.
Another source, a trader of frozen seafood, went as far as to suggest it could stop the trade in the short-term.
A processing executive in Qingdao, China, reported that it was plants who would have to bear the costs, as most of their sales were inclusive of cost and freight.
A sales manager at a US wholesaler told Undercurrent that for companies who had already won contracts and are in the process of fulfilling them, the price rise would be devastating.
“Three cents out of your profits? That’s huge,” he said.
Most factories are now avoiding using high price lines. I believe the price will go down
“On a day to day basis you would just raise your prices and pass it on, but it could really hurt some of the smaller companies.”
The freight price increases would not affect everyday business, as the marketplace would absorb the increase on competitively-priced products, said the sales manager.
But for some seafood, the necessary increase in prices would be transferred all the way down the chain to consumers and buyers.
“They get passed right on to our customers – foodservice mainly, plus more general seafood importers. It gets passed right on down the line, and happens pretty darn quick.”
Why the increase?
Several sources suggested it was Maersk Line that led the rate increase, and other lines were quick to follow.
Soren Skou became CEO of Maersk Line in January 2012, and has been vocal about the fact that the reefer business has not been satisfying in terms of profits, having spent a long period making a loss on refrigerated containers.
In a letter to its customers, in which it announced the $1,500 base rate increase, Maersk Line explained that the rates it had been operating on were not financially sustainable.
“Refrigerated containers are almost four times as costly to build as dry containers and associated expenses such as plugs, bunker cost and R&D put pressure on costs,” said the company.
“We are committed to our reefer customers and would like to continue investing in reefer equipment, but the current rates do not make it financially sustainable for us to do so. Given this scenario, we have decided to no longer invest in reefers in 2013.”
It is hoped the increase in rates, coupled with the cut in capacity, can boost earnings for the shipping line.
An executive at one shipping line told Undercurrent they had been surprised by the size of the increase Maersk had announced, but that many lines were happy to follow suit.
How long will rates be up?
Currently, the shipping executive told Undercurrent, the situation is somewhat up in the air. Negotiations are ongoing for many lines and their customers, though negotiations on shipments coming out of Asia are budging less than those heading there, he revealed.
The processing executive in Qingdao suggested that competition would quickly push rates back down again.
“I doubt this increase can hold. Some shipping lines are offering lower prices, and have [only] increased by $500 instead of $1,000,” he said.
“Most factories are now avoiding using high price lines. I believe the price will go down soon.”
This was confirmed by the shipping executive, who said that some lines are settling on an increase of $250 per TEU (twenty-foot equivalent unit, translating to $500 for FFE), and that the validity of these deals is only until the end of January of February.
“Lines who are still asking for $750 per TEU are going to struggle to justify this when other lines are lower, so they will need to come down,” he said.
He added that while lines were likely to give in within a few months, they would be making much better money then they had been in the meantime.
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