Shipping consortium to withdraw weekly US service as losses mount

Shipping consortium to withdraw weekly US service as losses mount
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First Published: Tue, Dec 11 2007. 12 26 AM IST

Restructuring routes: A file picture of the Jawaharlal Nehru Port in Mumbai. The growth in India’s exports to the US has slowed down due to a slump in the housing market and a credit crunch in that co
Restructuring routes: A file picture of the Jawaharlal Nehru Port in Mumbai. The growth in India’s exports to the US has slowed down due to a slump in the housing market and a credit crunch in that co
Updated: Tue, Dec 11 2007. 12 26 AM IST
Mumbai: A consortium of four shipping firms that runs a direct weekly service from India to the US east coast from 2005 has decided to shut down the service as a slowdown in the world’s largest economy cuts demand and freight rates for shipping goods to the US.
Restructuring routes: A file picture of the Jawaharlal Nehru Port in Mumbai. The growth in India’s exports to the US has slowed down due to a slump in the housing market and a credit crunch in that country.
The IDX service, run by India’s biggest shipping firm, the state-owned Shipping Corp. of India Ltd, Zim Integrated Shipping Services Ltd, Orient Overseas Container Line Ltd (OOCL) and Emirates Shipping Line FZE, is in the process of being withdrawn.
The service had eight container ships in operation with each of the four partners contributing two vessels each.
“We are exiting because of heavy losses. The freight rates are too low. There is more supply of shipping tonnage than demand on this sector,” said an executive at Israel’s Zim Integrated Shipping, who did not want to be named.
A public announcement on the withdrawal of service will be made in the next few days, he added.
The service connected Jawaharlal Nehru (JN) Port, India’s biggest container port, with the US east coast. It also linked ports in Tuticorin, Chennai and Mundra with the east coast of US.
The freight rate for moving a 20-foot cargo container, or twenty-foot equivalent unit (teu), from India to the US east coast is around $1,100 (Rs43,340). The freight rate was about $2,500-2,600 per teu when the service was first started.
A teu is the standard size of a container and is a common measure of capacity in the container business.
In comparison, the freight rate to Europe is in the range of $1,500-1,600 per teu.
With the growth in India’s exports to the US slowing down due to a slump in the housing market and a credit crunch in that country, the partners had differences on how the service should be run.
“There were differences among consortium partners on running the service since they were not making any money in operating ships on this route,” said an executive at Hong Kong-based container shipping and logistics firm OOCL Ltd who did not wish to be identified.
The US slowdown has led to over-capacity in the Indo-US east coast sector that accounts for about 70-75% of India’s exports to the US, said an official at the Dubai-based Emirates Shipping Line who did not wish to be identified. “Cargo volume growth to the US has stagnated this year,” he added.
In 2006, India’s exports to the US in cargo containers touched 190,000 forty-foot equivalent units, or so-called feus (each is double the size of a teu). Such exports were estimated to grow by 10% in 2007 to about 210,000 feus.
Exports to US in 2007 are now expected to stay flat, said a Shipping Corp. official, who did not wish to be identified.
Maersk Line, the world’s biggest container shipping firm, runs a direct service called MECL 1 from JN Port to the US east coast.
Hapag-Lloyd, APL, CMA-CGM, Mac Andrews, NYK Line and Mitsui OSK Lines together run a direct weekly service called Indamex on the same route.
Yet another direct weekly service in that route called Sina is run by Hanjin, K Line, Yang Ming Line and UASC.
“It makes more commercial sense to run direct shipping service to destinations where there are larger cargo volumes,” said the official at Emirates Shipping.
Container cargo traffic from India to Europe has grown by almost 30% over the last year. As a result, container ships plying to Europe are going full and the freight rates have gone up significantly, the official added.
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First Published: Tue, Dec 11 2007. 12 26 AM IST
More Topics: Shipping | US Service | Demand | Cargo | Growth |