March 22 2004 - SMALL shippers, especially those just entering the exportmarket, are drowning under the weight of escalating maritime freightrates.

Freight rates have increased sharply in recent months, hitting 30-yearhighs, on a surge in demand for shipping services, mostly from China, anda shortage of vessels.

Shipowners, however, are rejoicing, saying they are recovering much of theground lost during several years of low demand and cheap freight rates.

Federation of Malaysian Manufacturers (FMM) president Datuk Mustafa Mansursaid small shippers in particular have been hit badly by rising freightrates.

They include small- and medium-sized enterprises that are just about toenter the export market and those who do not have sufficient volume withwhich to negotiate preferential rates, he told Business Times.

Only shippers on long-term contracts escape the impact, industry officialssaying they pay only a quarter of the current high rates for containerisedshipments.

The situation is serious, Mustafa said, as the high rates mean higher costfor industries and ultimately more expensive Malaysian exports. It mayaffect Malaysia’s competitiveness in the export market, he added.

The high rates since May last year have even rendered any negligibleadvantage enjoyed by Malaysian exporters as a result of the currentlycheap US dollar.

The sharpest rate increases have been in the dry and liquid bulk cargosegment compared with the increase in containerised shipments.

Dry bulk freight rates have climbed 10 to 15 per cent in the past year,while liquid bulk freight rates have shown a 12 to 18 per centappreciation since July last year, said Mustafa.

Major bulk shipments including palm oil, rubber and timber have beenadversely affected. Mustafa said this may drive export prices for thecommodities, especially palm oil, upwards and he feared that buyers mayswitch to cheaper options.

The commodities may lose their price competitiveness in the export market,he added.

Containership operators, too, have increased freight rates. This month,charges for intra-Asean routes were raised by US$50 (US$1 = RM3.80) perTEU (20-footer container) and by US$100 per FEU (40-footer container).Rates between Malaysia and Europe have increased by US$150 per TEU andUS$300 per FEU.

Shipping lines have announced that there is going to be another increaseof US$50 per TEU and US$100 per FEU in the intra-Asian region and US$150per TEU and US$300 per FEU on the Malaysia-Europe trade from September 1this year, Mustafa said.

He said the Far Eastern Freight Conference (FEFC) an alliance of shippingcompanies servicing the sector had increased rates unilaterally withoutdiscussions with users. No reason was given for these increases.

Fasas Freight Synergy Sdn Bhd chief executive officer Yee Poh Tak saidshippers will just have to absorb the rise in rates. Freight rates go upbecause it is a worldwide phenomenon. You just can’t do anything about it,but hope for the best, he added.

Analysts have said Chinese demand for raw materials to meet its growingexport trade has fuelled the jump in worldwide freight rates and led to ashortage of ships.

Mustafa said that another concern among shippers was the monopoly of spaceon board vessels by large shippers.

The huge amount of Chinese exports has lessened space on board forMalaysian exporters a fact that has given shipping companies theopportunity to increase freight rates.

Because China offers large volumes of freight, shippers there can dictateand have the upper hand to negotiate better freight rates with shippinglines. Shippers in Malaysia, however, are told to take it or leave it, hesaid.

Meanwhile, dry bulk rates are set to climb in the next few years althoughindustry officials expect liquid bulk and containerised shipment rates tostabilise by the end of this year.

International Shipowners Association of Malaysia chairman Datuk AbdulLatif Abdullah acknowledged that while rising freight rates are good forshipowners, they will affect shippers or exporters as the latter have tobear additional transport costs.

But for a number of years, shipping lines, particularly container shipoperators, have suffered from depressed freight rates except in the lastone year or so.

Still, he said, container freight rates now are cheaper than what shippingcompanies enjoyed a few years ago.

Abdul Latif said that when Mitsui OSK Lines (M) Sdn Bhd first started withcontainer operations a few years ago, the rate from Port Klang toRotterdam was US$2,750 per TEU, excluding currency and bunker adjustmentfactors.

The rate now is about US$1,600 per TEU, said Abdul Latif who is alsoMitsui OSK Lines’ executive director.