10 July 2017
Big increases across most trade lanes push average spot prices 36% above the ‘exceptionally poor’ levels last year, Drewry analysis reveals
Global spot market freight rates were more than one-third higher in the first-half of 2017, with big increases across most trade lanes providing a “huge correction after a disastrous 2016 for rates”, analysis by Drewry reveals.
And with the recovery holding up well in the second quarter, the container shipping analyst believes the recovery should continue throughout the remainder of this year.
Data from Drewry’s Container Freight Rate Insight database indicates that Drewry’s Global Freight Rate Index was some 36% higher after six months of 2017 versus the same period in 2016, although the container shipping abalyst stressed that last year was “an exceptionally poor one for carriers when it came to securing compensatory rates”. When compared to the first half of 2015, spot rates for 1H17 were still 4% lower, it noted.
Analysis shows that despite some seasonal erosion, rates this year overtook monthly averages for both 2015 and 2016 from April onwards. Drewry said the big question was “which of the second-half trends will rates for this year follow - the declining path of 2015, the resurgent 2016 direction, or something in between?”
Examining where the recovery has been the strongest, Drewry said the westbound (WB) Asia to Europe corridor had made the “most prolific” recovery among the East-West headhaul markets. Drewry’s Asia-Europe WB Index was up by 61% year-on-year after six months of 2017 and even performed better against the same months in 2015, being higher by around 12%, the analyst noted.
Eastbound Transpacific rates saw “slightly more muted growth this year at 33%, which was insufficient to better the 1H15 average”. And spot rates in the Transatlantic westbound market, “which admittedly is more contract-oriented”, were lower in 1H17 than in either 1H16 or 1H15.
Drewry reported a similar story in the backhaul direction, with rates from Europe to Asia significantly outperforming the other trades. Eastbound Europe to Asia rates were given a boost earlier this year during a temporary space shortage caused by stronger demand and alliance reorganisation, Drewry highlighted. “As predicted, backhaul rates are gradually softening on this trade and we expect a further weakening in July,” it added.
Meanwhile, on North-South trades, Drewry observed “some very high columns” in its sample of seven North-South headhaul trades, the tallest being an 83% year-on-year hike in rates in 1H17 from India to Europe (Nhava Sheva to Rotterdam). The weakest so far this year has been in the Asia to Australasia (Shanghai to Melbourne) and East Coast South America to Europe (Santos to Rotterdam) trades, Drewry said. But only three of the seven selected lanes (Santos to Rotterdam; Shanghai to Melbourne; and Shanghai to Nhava Sheva) failed to improve on their 1H15 averages.
But backhaul North-South trades “have generally failed to generate much additional revenue to carriers in 2017, with the most notable exception being Europe to India (Rotterdam to Nhava Sheva)”. Drewry said. That was up by 39% compared with the first half of 2016 and up 12% versus 1H15. There was also some uptick in rates from East Coast South America (ECSA) to Asia (Santos to Shanghai).
Drewry said the figures suggest “a fairly broad recovery back to 2015 levels, especially across the headhaul trades that are most important to carrier revenues. Notwithstanding any seasonal fall-off we also know that the recovery held up well in the second quarter and should continue throughout the remainder of the year.”
It continued: “With carriers on the verge of returning to profitability thanks to these higher spot rates and improved contracts, combined with the extra pricing power gained from M&A and stronger fundamentals, we think it highly unlikely that there will be a return to the pricing wars of early 2016. Due to the higher 2H16 rates, the comparisons will get tougher as the year goes on, which will put an end to the very high year-on-year increases, but even if they plateau or start decreasing in 4Q17, they will still be higher than in 2H16 as a whole.”
Drewry concluded: “This year is one of huge correction after a disastrous 2016 for rates, buoyed at the same time by better supply and demand fundamentals. While there is still some ground to be made up to get above pre-2015 levels, there is no doubt that the pendulum is swinging quite fast towards a carriers’ market.”
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