Dubai: The signs are there. Sea cargo volumes into Dubai have had a noticeable spike in December and, more importantly from the industry's perspective, been maintaining these levels since. At the same time, the cargo rates have not moved in direct proportion to the volume gains.
This would, according to industry sources, provide the much-needed impetus to sustain the recent momentum. "Since December, there has been no noticeable gain on rates," Shamsudeen Ahmad, who heads the Middle East operations of Germany's Leschaco Freight Solutions, said. "Typically, when demand goes up, it's accompanied by capacity shortages on the main lines — that has not happened in this instance and is a key factor in the rate stability.
"It could be that the shipping industry is still trying to come to grips with the massive capacities that were created before the downturn. A lot of consolidation has since taken place and still continues."
Drop in cargo rates
During the downturn, cargo rates fell 20 per cent, depending on the sector and the regions to which the goods were headed. In some instances, the declines were as much as 30 per cent.
"I don't feel there will be a significant rate increase in the short- to medium-term," Ahmad said. "The increases will be normal ones on account of a firming up of fuel prices, etc."
According to Raghu Menon, who heads the Sharjah-based logistics firm Hexxomatrix, "The general perception is that global freight rates won't improve much until 2014 despite shipping lines announcing increases.
"For instance, MSC Mediterranean Shipping Company has advised clients the bunker contribution to be applied to cargo from any origin in Europe to the Middle East as of March 1 will change from $435 (Dh1,597) per TEU to $465 per TEU."
Also, a shipping line increased rates on its India-Middle East-East Africa sector by $200 per TEU from February, while from March 1, rates for India and the Middle East to Africa will rise by $150 per TEU.
"By and large, from the fourth quarter onwards, a better balance between new capacity and demand has led to a modest recovery in cargo throughput," Menon said.
Marked increases in cargo throughput into the local ports, as well as transshipment volumes from here to the rest of the region will work to the UAE's advantage and further cement its status as the undisputed regional hub.
The cargo industry, for one, is taking a lot of heart from the recent weeks. "A lot of companies were OK with the fourth quarter and the freight forwarding volumes are getting better… at least they are not going down," Ahmad said.
"The movements from the Far East are strong, as so are those from Europe."
For the UAE's cargo industry, that makes for an ideal state to be in.
Middle East foray
Leschaco, the German logistics solution provider which has been around since 1879, has set up an operational base in Dubai. This marks the company's first direct venture into the region, until now serviced through affiliates.
"The company has completed a network expansion in the Far East and South America and for historical reasons has been strong in Europe," Shamsudeen Ahmad, managing director for the regional operations, said. "The Middle East represented a big gap in the chain and now that has been covered."
Going forward, the company could consider investing in a warehousing base for third-party logistics as well as to expand the network to include Saudi Arabia and Qatar.
"We definitely foresee a major role in being a third-party logistics player, but that would be the second step," Ahmad said.
Stable freight rates
In recent weeks, freight rate levels out of Asia have remained stable despite the surge in traffic before the Chinese New Year in mid-January. According to the World Container Index (WCI), the average spot rate quoted by carriers for cargo from Shanghai to Los Angeles on January 26 remained at $1,820 per TEU, the same as the week before, but still well above the $1,420 quoted just before Christmas.
Rates from the Indian subcontinent to the US east coast will increase by $320 per TEU, $400 per TEU and $450 per 40 foot container.