Drewry tracks carriers’ financial health

01/28/2010

Drewry Shipping Consultants is introducing a report for shippers called “Freight Shipper Insight,” which provides market information on demand trends, freight rate developments and macro-economic indicators specific to the ocean, air, rail and road freight sectors.

Two key features of the report are spot market airfreight rate benchmarks for cargoes out of Shanghai to destinations in the United States and Europe and a Z-score financial stress index for freight operators, which can indicate whether a carrier’s vessels or planes may be in danger of seizure by creditors.

Most of the ocean-freight-related companies tracked in the index have low Z-score ratings, as do most airlines, whereas major freight forwarding companies have very safe ratings.

“With the launch of Freight Shipper Insight we are aiming to give shippers across all transport modes often hard to get information that will help to improve their business decisions,” said Simon Heaney, editor of the new report.

The Z-score index was compiled by Drewry to provide a quick reference to shippers who are increasingly concerned by the financial fitness of their service providers.

The Z-score method was developed by U.S. academic Edward Altman in the 1960s to predict the likelihood of a company’s failure in the next two years, based solely on data from financial reports. Drewry said the Z-score ratings are therefore objective calculations and do not necessarily reflect its opinion regarding the prospects of the companies.

A.P. Moller-Maersk and Orient Overseas (International) Ltd., parent companies of Maersk Line and OOCL respectively, are the only ocean-freight-related companies with Z-scores above the “distress zone.” Zim had the lowest of all the selected freight companies rated.

The Z-score index highlights the fact that while the broader global economy might be on the mend, certain sectors of the freight transport industry will take far longer to recover.

The airfreight rate benchmarks indicate how far prices out of Asia have taken off in the last few months. The Drewry Air Freight Price Index has risen by 29 percent from October to December, as air carriers have been able to push up rates by holding back capacity amid a late-year demand surge.

It is a similar situation in the ocean sector with rates on the increase in the key Asia-Europe/Med and trans-Pacific trade lanes.

“Air and ocean shippers alike are faced with the same headaches in terms of pricing and space allocation due almost entirely to the severe capacity retrenchments and decommissioning of fleets. That is why this report is timely. We want to fill the information gaps for international shippers,” said Heaney.

Heaney added that Drewry is concerned that the current environment will only serve to further sour relations between carriers and their customers.

“Some shippers have told us they feel like they are being blackmailed by carriers who are showing little or no respect for contracts,” he said. “It looks like the animosity between the two sides is intensifying, especially after the announcement by the Transpacific Stabilization Agreement carriers to impose an Emergency Revenue Charge mid-contract.”

Drewry believes that some of the freight rate increases have been a natural correction as prices had fallen way below break-even (the container shipping and airline industries will book a combined loss in the region of $20-$30 billion for 2009) but that carriers could be doing a better job of explaining their actions.

Heaney said that it is not surprising shippers are angry right now: “Just look at the way some lines are dressing up rate hikes as ‘Peak Season Surcharges’ even though it is historically the slackest period.”

Freight Shipper Insight is also home to a select number of core east-west trade ocean rate benchmarks that are part of Drewry’s long-established and unique freight rates database, including Drewry’s Hong Kong to Los Angeles spot rate index. The index now shows that the trans-Pacific carriers achieved almost all of the emergency revenue charge they were seeking, emphasizing their new-found discipline.

“Carriers are playing hard-ball right now, so shippers need to be armed with the best weapons they can find,” said Heaney.


Source: Journal of Commerce, January 26, 2010