The ‘Maersk Effect’ sees rivals’ costs rise

Rates to Europe jumped a whopping 88% or $634 this week to reach $1,353 per TEU as carriers push through their planned December 15th GRI. It was a similar story on the USWC with rates jumping 24% or $434 to $2,259 per FEU.

All eyes will be on next week’s SCFI to see how much of the increases can be maintained prior to the usually quiet period around Christmas, when rate movements tend to be minimal.

Elsewhere this week the huge gap between Maersk and its competitors in regards to raising additional financing was under the spotlight.

Hapag-Lloyd is expected to incur debt interest expenses this year of $200m, whilst its most recent bond offering was placed with a coupon of 7.5% for five years. The Germans’ rival Maersk Line is able to raise significantly more capital at levels less than half that of Hapag-Lloyd, highlighting the substantial difference in terms of credit risk between the two companies.

Moreover with a seemingly unrelenting appetite for ever larger vessels Maersk Line’s competitors will find it increasingly expensive to fund their ordering habit, raising more concerns over the long term financial health of the industry.

This trend is already apparent in the companies’ gearing ratios, another measure of leverage and risk. Maersk currently stands with a ratio of approximately 19%, whilst Hapag-Lloyd’s is fives time as high at 99%, however this is still some way short of Hyundai Merchant Marine’s debt ratio of 1186%.

With further rate increases likely ahead of the Chinese New Year, forwarders can look to the FFA market to achieve some level of protection from the volatile market.

Those with index-linked contracts in place, discounted by up to 25-30%, can combine their physical contracts with FFAs to secure their net spot costs for January at around $950 per TEU.

Given historic averages for January of above $1,400 per TEU, securing a portion of spot cargo at these levels should provide the forwarders with a pricing advantage – rather than a New Year hangover – come January.