China will get into the long holiday of 8 consecutive days called the golden week, the Anniversary of the Founding of the People’s Republic of China from Sep 29. It is usually cargo rush expected before the long holiday. However, this year seems to be well managed with empty inbound and the rest of long term containers. Export in Sep ex China has not been powerful. Container demand would usually get into the slack season in winter. This year shipping lines will advance the preparation of the winter season one month earlier in Oct by reducing the number of ships, cutting the service routes and executing more extra slow steaming (less than 13 knots) in order to overcome the difficulty.
In addition, Sep would be the headache month. The strike possibility by International Longshoremen’s Association (ILA) would increase in US East and Gulf coast. At present ILA and U.S. Maritime Alliance (USMX) have been negotiating by the deadline of the end of Sep. Most of shipping lines would think it difficult to avoid the strike by now. If strike happens all import and export through US East and Gulf coast would stop. It would share about 30% of total trade volume to and from USA. Shipping lines could shift it to US West coast. However, it would be impossible due to the limited port facility and space availability in the coast-to-coast railroad. It would be inevitable for the strike to cause uncontrollable chaos, such as piled up and undelivered containers here and there. Therefore, shipping lines are providing against the strike by stopping to accept a part of inland cargo, declaring to impose a congestion surcharge (as a case $800 per 20f, $1,000 per 40f or $1,000 per unit). The surcharge would be possibly applied not only to US West coast but all ports in USA. Anyway, the surcharge would be inevitable for shippers to share under an emergency situation as shipping lines would take a risk in burdening the unexpected costs in the strike.
Some people would still remember that 10 years ago in 2002 the International Longshore and Warehouse Union (ILWU) went on strike and closed 29 ports in US West coast for 12 days. Former President Bush implemented the Taft-Hartley Act to mandatorily terminate the strike. During the strike shipping lines could not bring back their own fleet ex US West coast. As a result, it had caused the big panic of container shortage in China and Asia where big demand existed. we had a living lesson from that. Therefore, We will have to keep a watchful eye on the negotiation between ILA and USMX.
Shipping lines have been successful in restoring the freight rate to some extent. According to French, AXS-Alphaliner the container vessel fleet has increased 930,000 teu in 2012 (equals to 5.7% of the world container vessel fleet). It would be 30% raise compared with the beginning of 2012. Shipping lines have absorbed 30% fleet raise by extra slow speed to stabilize the freight rate. The sailing speed is less than 14 knots. It is obvious to see the comparison between 2012 and 2007 in the ship rotation.
The current situation is critical to Chinese container makers. There would exist 400,000 teu, brand new container left in the factories all over China. On top of that there seems to be no new order from leasing companies. The new container price would be lowered $2,300 per 20f. With decrease of the price of steel panel the actual container price would be less than $2,300 per 20f if the order is actually made. Each major leasing company seems to have been facing the problem of long idling brand new container of 2~30,000 teu in stock in factory. So they could not take a speculation order under sluggish demand from shipping lines. Their utilization seems to have decreased nearly to 90% by returning expired long term lease.
There are not always pessimistic stories in the world. The news just jumped in on Sep 7 that Chinese government has approved the public investment of RMB 1 trillion ($158 billion), which will be used for the infrastructure such as ports, railways and highways. Thus we would like greatly expect the economic effect of RMB 1 trillion to the world. It is still a vivid memory to us that RMB 4 trillion ($632 billion) carried out by Chinese government as a policy for stimulating economic recovery after Lehman Shock had contributed to the world economy to great extent.
Under such severe economic situation, 3 Japanese shipping lines expect the profit in the fiscal year of 2012(at the end of Mar. 2013) of the liner department as JPY 1.5 billion for NYK, JPY 3 billion for MOL and K Line respectively by success of recovery of the freight rate and economizing the fuel consumption by extra slow steaming.
If the strike occurs in US East and Gulf coast it would be plus factor to leasing companies in order to sweep the idling containers in the factories in China. In addition, more extra slow steaming would cause shipping lines more containers in need which is also plus factor to leasing companies. The steady demand for second hand containers in the world would continuously ensure leasing companies and shipping lines count on as the outlet of their old containers. The formula of purchase/lease back would be powerful skill to shipping lines these days. Shipping line could earn the large amount of the selling price from leasing company so that shipping line could use it as the extra fund to others. But they could keep using their containers for certain period of time free of charge which would be subject to individual contract and the supply demand situation. However this close relation between shipping lines and leasing companies would be considered to stay unchanged for a while.