Bangladeshi exporters looking to gain from a direct shipping service to China have had their hopes dashed with the suspension this month of the first such link barely five months after it was initiated. They key problem – there are just too few goods heading China’s way.
“The ships which were coming from China directly to Bangladesh were going back with almost empty containers,” Rafiqul Islam, Bangladesh country representative of Singapore-based Pacific International Lines (PIL), told Asia Times Online.
The service loss is also a blow to the Bangladeshi government, keen to boost exports to rein in a trade deficit that widened more
than 25% in the five months through November compared with a year earlier.
The direct link meant goods took between 12 and 15 days, saving nearly a week compared with other routes, which take in a stop at Singapore. Vessels may even take “around 25 to 28 days to reach Chittagong, as there can be delays at the Singapore port”, an official of another Singapore-based shipping company told Asia Times Online.
The blow to Bangladeshi exporters comes at a time when shipping companies are raising rates around the world amid higher fuel prices and after incurring losses last year as international global trade growth slowed just when a large number of new vessels were coming into service. Maersk Line, the world’s largest container ship operator, this week reported a fourth-quarter loss of US$633 million and forecast a second sucessive full-year loss in 2012. Some vessels, their speeds reduced to save fuel, are now reportedly travelling slower than in the days of sail.
“This is happening due to the global economic situation,” said the official of one Singapore-based shipping company. “The demand for goods in the US and in Europe has reduced a lot and this is leading to severe losses for shippers, who are coming up with effective solutions to cut losses.”
PIL, which suspended the service for two months, may close it after that if exports from Bangladesh to China do not increase significantly. For the moment, “the company is going to withdraw three ships out of five from the route during February and March of this year,” said Islam. The remaining two will call at Singapore [from Chittagong] during that period.
PIL started the “landmark” shipping link last September 9, with five ships that sailed between Shanghai, Ningbo in nearby Zhejiang province, and Nansha in Guangdong province and Chittagong and Mongla ports in Bangladesh.
The decision to initiate a direct link from China to Bangladesh was “premature”, said Manjur Ahmed, adviser of Federation of Bangladesh Chambers of Commerce and Industries (FBCCI).
“We import a lengthy list of items from China, but we do not export much to them, as their domestic consumption and production is quite high,” he told Asia Times Online.
Even so, immediately after PIL introduced its direct route, it immediately faced added competition for customers when Maersk introduced four vessels on the route – albeit including a stop-over in Singapore.
When each PIL vessel had a capacity of 1,200 to 1,500 twenty-foot equivalent units (or TEUs, an industry standard), only around 400 to 500 TEUs arrived from China. “If the same amount was going back, we would not have worried. But of late, around 100 TEUs hardly get filled,” said Islam. Even a reduction in container rent from $1,000 to $600 failed to boost business.
“On top of this, as the fuel price is increasing, our losses are piling up,” said Islam, who had earlier said PIL was incurring losses of nearly US$1 million per voyage.
“During February and March, we will continue to carry cargo between Bangladesh and China through transhipment via Singapore. Three ships will carry containers from China to Singapore and then they will be brought to Chittagong port through a feeder service. This will take maximum 15 days, compared with 12 days with the direct route,” said Islam.
“We will re-evaluate the situation after March. If the exports to China do not increase drastically, we will have to shut down operations on this route altogether.”
Importers in Bangladesh reportedly saved around $120 in freight cost per container with the direct link. These importers bring in around $7 billion worth of goods from China annually, including electronics, fabrics, machinery, raw materials and and fruit annually. Chinese goods accounted for nearly 21% of Bangladesh’s $33 billion imports in the 12 months to last June.
Exports are more limited, with China buying about $400 million worth of goods from Bangladesh, including raw jute, apparel and leather, last year. The direct link encouraged the export of around 150,000 bales of jute from the Khulna belt of Bangladesh. Exports of the material to China were worth $11.9 million between July to October.
The prospects of a direct link being renewed appear poor. “In the near future, there will be fewer chances for such links with China as our marketing network with the country is poor and there are no permanent buyers there,” FBCCI’s Ahmed said.
Among other big shipping lines, Maersk declared a cut in its capacity on the Asia-Europe routes last November. Around the same time, Orient Overseas (International) Ltd (OOIL) announced a cut in capacity on European routes by 20% as they had lost money during the third quarter of 2011.
France’s leading container shipping company, Marseilles’ CMA CGM, has increased freight rates for services for routes from India, Pakistan, Sri Lanka and Bangladesh to the US East Coast.
Israeli container carrier Zim is increasing its rates between the Indian subcontinent and Europe, the Mediterranean and the Black Sea region by US$750 per TEU effective from March 1. Hapag-Lloyd, MSC, MOL, Hanjin and United Arab Shipping Co (UASC) are also raising rates on Asia-Europe.
South-Korea’s Hanjin Shipping and 14 other members of the Transpacific Stabilization Agreement (TSA) announced on February 9 an increase in rates of $300 per 40-foot box in March. TSA members also decided to raise rates by $500 per container in annual contracts starting around May. Industry-wide losses totalled $5.2 billion in 2011, due to price wars and higher fuel costs, according to Drewry Shipping Consultants Ltd.