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Shipping industry to benefit from price fixing - Views on News from Equitymaster
 
 
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  • Aug 26, 1999

    Shipping industry to benefit from price fixing

    According to newspaper reports, the India Pakistan Bangladesh Ceylon Conference has said that it will hike export container rates by $ 300 to $ 1,200 per TEU (twenty-foot equivalent unit) October 1, 1999 onwards. The consortium is the only one of its kind on the UK-Europe sector.

    The move to hike charges is likely to come as a shot in the arm for shipping companies, which have been reeling under the pressure of lower volumes and still lower prices. The fall, triggered by the Southeast Asian crisis, was precipitated as the crisis spread to Brazil and Russia and finally impacted overall world growth.

    However, there now seems to be an economic recovery in the Southeast Asian nations and, most importantly, in Japan. With the US economy continuing to steam ahead and UK likely to join by the end of 1999 (EIU forecast), the world economy is set for an overall good performance. The direct fallout of this will be on trade traffic, on the basis of which the consortium has hiked the export rates for containers.

    In the immediate future, Indian shipping companies would benefit only to the extent to which they are exposed to this sector. However, as the trickle down effect gains momentum, Indian companies will benefit from higher rates as well as higher traffic.

    There is, however, as in the past, a possibility that the shipping lines may undercut each other to grab a larger share of the market. Although the volumes would be higher, this would lead to lower realisations, thus adversely affecting growth in profitability.

     

     

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