Sea freight costs to soar

WA shippers should brace themselves to pay more for sea freight rates to transport goods to their trading partners at nearby and distant shores.

While shippers are lamenting the global trend towards rate rises, with some even suggesting the increases will put them out of business, as reported in Business News earlier this year, they must face reality.

Rates will not return to the bargain basement level they have enjoyed for the past few years and those who have entered new markets based on low freight rates will be forced to make adjustments.

Depressed freight rates, the result of a chronic over-capacity of shipping space in the late 1990s, could not last and as a consequence rates for most trade routes have risen – and will continue to rise – by at least 10 per cent.

The increases are due to a simple market principle: the demand-supply factor favours shipowners. Since the end of last year there has been a worldwide tightening of space on container vessels as a result of the recovery of Asian economies, a rise in scrapping rates of old ships and a slowdown of building new vessels.

However, savvy shippers will consider how they can secure the best deal and lock in rates now before market forces push them too high.

As WA Sea Freight Council executive officer Michael O’Callaghan points out, exporters and importers need to become better educated about how to make the best use of available shipping services out of Fremantle.

“There is an abysmal lack of understanding out there about how to move goods to overseas customers,” Mr O’Callaghan said.

“Yet those who have bothered to learn about this vitally important part of business have had the good sense to lock in rates for contracts for anything up to five-year terms.”

WA Shippers Council (WASC) executive officer Keith Seed said his group was maintaining a vigil to ensure increases were legitimate rather than opportunistic.

WASC had joined other Australian shipper groups in lodging a complaint with the Australian Consumer and Competition Commission against a series of rises introduced by the 17-member Trade Facilitation Group for the South East Asian trades.

“Over the past year rates on these routes have doubled,” Mr Seed said.

“For shippers who are providing a product under a 12 to 18-month contract this can really cause problems because they cannot factor the price rises into their contracts.”

The industry rationalisation that has contributed to rate rises had to happen.

In 1996-97 rates on some routes – particularly those to chronically over-serviced South East Asian ports – fell by as much as 30 to 50 per cent overnight.

Shipping lines were losing up to $1 million a month.

If this continued WA exporters may have had goods stranded on the docks as their transport provider was forced out of business.

The most dramatic price increases have been on the strategically-important trade routes between Australia and South East Asia.

But these rates were ridiculously low. In real terms, they were the lowest they’ve been since the 1970s.

Last year northbound rates from Australia to Singapore went as low as $400 per 20 foot dry box container. In January this climbed to around $750 and in April to $950, though this has not stuck.

Rates have also risen – between 10 and 40 per cent – on North Asian trade routes, the European and Middle East trades and North American services.

Liner Shipping Services (LSL) CEO Llew Russell said he believed freight rates may stabilise within the next 12 months.

n Next week: Business News looks at a survey which shows the availability of shipping services out of Fremantle.

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