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Ocean freight rates set to remain subdued

Ocean freight rates set to remain subdued

29 April 2019

26 April 2019

Low demand growth on the Asia-Europe trade will keep a lid on spot price gains, says MSI, while recent transpacific price rises seem to have stalled since March

The spot freight rate outlook is “underwhelming” for the container shipping sector despite the best recent efforts of lines to retain control over capacity and pricing, according to one leading analyst, although rates on the main east-west trades remain up slightly from last year’s levels.

 

Maritime Strategies International (MSI) said carriers would likely continue to blank sailings on Asia-Europe and transpacific services into the summer - possibly taking advantage of scrubber installations due to the new ‘IMO 2020’ low sulphur fuel rules that come into force in January - but capacity expansion would continue to outweigh growth in volumes. 

MSI said the coming quarters would also increasingly test lines’ ability to pass on fuel costs as higher crude prices increase bunker costs.

Demand growth on the Asia-Europe trades is expected to “remain weak” but “positive” through the summer, mostly due to stronger consumer sectors and solid growth in central and eastern European nations.

“We expect overall volume growth of 2-2.5% in the coming quarters,” said the latest report from MSI. “Carriers have announced nine blanked sailings in May, totalling 115,000 TEU. On the basis of scheduled sailings, and assuming our forecasted moderate volume growth comes to pass, vessel utilisation will improve later in Q2. 

“However, it will take either a similar volume of blanked sailings, or else 5+% demand growth, to bring load factors back up to around 90%.”

On the Asia-Europe trade, therefore, MSI forecasts spot rates of around $930 per TEU in June and $850 per TEU in September.

Over the remainder of this quarter, the analyst expects transpacific spot markets to remain higher on a year-on-year basis until the summer, when 2018 rate surges due to the US-China tariff war might see year-on-year comparisons turn bearish.

“In the absence of higher tariffs healthy consumer expenditure will drive an improvement in volumes while lines will continue to limit capacity upgrades, at least to the US West Coast, as far as possible,” said MSI. 

“On the Transpac as a whole, we expect spot rates of around $1,860/FEU in June and $2,000/FEU in September. Risks are arguably weighted to the downside, although rates have actually held up better this year than we had initially feared.”

Turning to the current market, MSI said that after signs of stabilisation in March, main-lane spot freight rates had been steady so far in April. The SCFI Comprehensive index is currently 13% higher than a year earlier.

“The Asia-North Europe and Asia-Med trades, against a backdrop of capacity upgrades, have effectively moved sideways since mid-March,” added the analyst. 

“Carriers succeeded in implementing GRIs on the transpacific trades in the last week of March, although upward momentum since then has stalled and annual contract rate negotiations are reportedly proving challenging for liners.”

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