Times aren’t easy for the logistics industry.
The world’s biggest container shipper, Maersk Line, will soon stop services in and out of 10 ports in China to help cut costs that are ramping up as a result of falling freight rates.
Maersk said it will cease services at ports in Chizhou, Luzhou, Yingkou, Jinzhou, Rizhao, Yueyang, Lijiao, Taiping, Jiaoxin and Nansha, according to Reuters. Currently those ports are served by feeder vessels that move goods to bigger ports and put them on bigger vessels to be taken to Europe and the U.S.
“The closure of service in these Chinese ports should not be interpreted as a change of strategy,” Maersk told Reuters.
Freight rates have plunged to historic lows thanks to slowing global growth and shippers are struggling to return to profitability.
According to the World Container Index (WCI) report released last week, however, while rates are low, they are starting to see an upward trend.
The average spot rate for Shanghai-Rotterdam was $772 per 40-foot container in the January-April period, it increased to $1,467 between May and August, and as of last week, the rate is up 6 percent over the same week in 2015 to $1,914.
“Shippers and cargo owners booking under spot rates enjoyed huge cost reductions while carriers suffered substantial revenue shortfalls in early 2016 on the Asia-Europe route but, as we predicted, this extreme situation did not last,” said Philip Damas, director at maritime analysts Drewry and co-owner of WCI.
Maersk said back in May that it would make certain “improvements” to its Asia-Europe network—the world’s largest trade lane. The company said it would eliminate overlapping port pairs to reduce the amount of direct port calls, which would also help it maintain competitive transit times.
Vincent Clerc, Maersk Line chief commercial officer, said at the time, “We are utilizing our scale to deliver a better product. With the largest network and the deployment of an increasingly uniform fleet of ultra large container vessels, we maintain our extensive direct coverage while focusing each service towards best in class transit times to specific markets on the trade.”
For the first quarter Maersk Line reported profit down $714 million to $37 million and revenue fell 20 percent from the first quarter in 2015, driven largely by a 26 percent decline in average freight rates.
Maersk will release its interim results Friday, and analysts at Drewry are expecting the results to be bleak.