Drewry: Container Rates to Rise after Hitting Bottom
- Business & Finance
Container freight rates are forecast to rise modestly over the next 18 months from the all-time lows reached recently, but this will not be sufficient to rescue the industry from substantial losses in 2016, according to shipping consultancy Drewry.
Liner shipping has had a torrid time so far in 2016 with spot freight rate volatility reaching unprecedented levels, while unit industry income has fallen to record lows.
Drewry estimates that container carriers collectively signed away USD 10 billion in revenue in this year’s contract rate negotiations on the two main East-West trades. With annual Transpacific contract rates as low as USD 800 per 40ft to the US West Coast and USD 1,800 per 40ft to the US East Coast, carriers have done exactly what they did during the global financial crisis in May 2009 in a desperate attempt to retain market share.
With first quarter headhaul load factors at around 90%, there was no logical reason for carriers to sign so much revenue away in one fell swoop, Drewry said.
While spot rates on the core trades have significantly improved after the 1 July GRIs, it is still too early to say if carriers have suddenly changed their approach to commercial pricing.
The recent decision by the G6 lines to take a weekly loop out of the Asia-North Europe trade is a positive move. But similarly pragmatic and pro-active measures will be necessary across other sick trades if recent improvements are to gain momentum. While the new alliance structures are bedding-in between now and April 2017, this work will take some time yet.
“For 2017, Drewry anticipates a slightly brighter picture with global freight rates forecast to improve by about 8%. Carriers are expected to take some action to address overcapacity as cashflow attrition becomes more urgent and BCO (beneficial cargo owner) rates rise from this year’s lows. But once again, this cannot be seen as a genuine recovery since these so-called improvements must be set in context against the unnecessarily big rate declines seen in both 2015 and 2016,” Neil Dekker, Drewry’s director of container research said.