Alphaliner says some Asia-Europe rates below zero

Container freight rates on the Far East-North Europe spot market have dropped below zero after stripping out bunker surcharges, and rates will continue falling as leading carriers engage in a “destructive” rate war, according to Alphaliner.

The Far East-North Europe spot rate has sunk to less than $680 per 20-foot equivalent container unit while the average bunker adjustment factor currently stands at $750 per TEU. Net rates are lower than in the depth of the 2009 container shipping slump, the container market analyst said.

The latest weekly SCFI, or Shanghai Containerized Freight Index, had the spot rate from Shanghai to Europe down to $677, down nearly 20 percent since the end of August.

This means the net spot freight has fallen 69 percent since March 2010 to an “unprecedented” negative $70 per 20-foot container.

“However, these ‘negative’ freight rates are illusory as current BAF levels fail to incorporate cost savings from extra-slow steaming and from the impact which the introduction of larger ships had on actual per-container fuel costs,” Alphaliner said.

Based on a fuel price of $650 per ton, the actual per-slot bunker costs for a Far East-North Europe round trip are around $280 per TEU for a 13,000 TEUs vessel and $370 per TEU for an 8,500 TEUs ship. This represents less than half the average BAF currently applied by carriers on the westbound leg out of Asia.

“With such ‘income’ generated from bunker surcharges and with carriers still engaged in a destructive price war there is thus a high probability that container freight rates will drop even further.”

The leading carriers Maersk Line, Mediterranean Shipping Co. and CMA CGM are using their more competitive unit slot costs to drive out smaller competitors on the Asia-Europe trade. Their efforts so far have been futile as only 3.5 percent of the total capacity on the Far East-North Europe trade has been withdrawn this year.

Competition will intensify and rates will come under further pressure over the next six months as more ships over 10,000 TEUs enter the trade, Alphaliner predicted.