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Hanjin bankruptcy sees freight rates bottom out

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South Korea's largest marine shipper Hanjin Shipping went bankrupt in August.   © Reuters

TOKYO -- Spot rates of oceangoing container ships appear to have bottomed out. In addition to growing demand for ships bound for the U.S., the collapse of leading South Korean marine shipper Hanjin Shipping accelerated attempts by other companies to shore up earnings with higher freight rates.

With the introduction of large container ships aimed at reducing operating costs, the shipping capacity supply and demand balance is not too tight, but the prevailing view is that the rock-bottom prices seen this past spring are unlikely to reoccur.

A benchmark freight rate of transporting a 40-foot container from Asia to the U.S. West Coast is about $1,810, up roughly 60% from late August before Hanjin went under and nearly 80% from a year earlier. Shortly after the Hanjin collapse, demand for container ships rose sharply to cover containers the company could no longer handle and the resulting shortage of space was felt strongly.

Freight rates kept climbing in October as shipments for the year-end shopping season peaked. According to the Japan Maritime Center, the number of containers shipped from Asia to the U.S. for the January-September period of 2016 totaled about 11.57 million in terms of 20-foot units, up 2% on the year, and the pace surpassed the record for the whole of 2015. On the back of solid spending and housing in urban areas, growth in shipments of plastic products, including furniture, building equipment, floor materials as well as audiovisual devices was notable.

That said, special demand due to the Hanjin bankruptcy did not last long as other marine shippers pounced on containers in South Korea and started new services. "The [supply-demand balance for] space seems tight because it happened to coincide with the peak season," said an official at a freight shipping company in October. Such views were shared by many in the industry. Hanjin had a large share of the market, roughly 7%, in the route for the U.S. but even after it stopped the shipping service, no such situation arose as ports were inundated by containers waiting to be shipped.

Generally speaking, large freight owners sign contracts at fixed rates for a year. Even among those who had to find other companies to handle the stranded containers, only a limited number of freight owners saw their rates fixed under annual contracts go up. "Finding space went smoothly because there was still room for shipping capacity," said one official in the distribution industry.

A shortage of space is unlikely to occur, now that progress has been made in the introduction of large ships with loading capacity of nearly 20,000 containers each.

Demand for the end of the year has peaked out but rates have not fallen primarily because "the attempt to secure freight at low rates, which was prompted by a sense of urgency about the business environment, has run its course," said an official at an oceangoing shipping company.

Earnings results for the July-September quarter showed that the three Japanese ocean freight companies -- Nippon Yusen, Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha -- posted losses as did the marine shipping business of industry leader A.P. Moller-Maersk of Denmark. Their efforts to improve profitability will prove in vain if spot rates remain low as they also affect negotiations on annual freight rates, which will have a huge impact on bottom lines.

All eyes are now on whether marine shippers will be dragged into a price war again to secure the necessary amount of freight as loads to be handled will decline toward the end of the year.

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