23 November 2018
Container lines hoping for a spike in Asia-Europe westbound freight rates as shippers stock up inventory ahead of the holiday season seem certain to be disappointed. And, with spot rates failing to show any sign upward momentum this month, some analysts expect bearish spot rates to put downward pressure on annual end-of year contract negotiations between carriers and shippers.
The composite index of the World Container Index, assessed by Drewry, dropped 4.7% this week, with Shanghai-Rotterdam rates tumbling $71, week on week, to reach $1,543 per feu on 22 November and Drewry expecting “marginal drops in rates next week”.
Freightos, however, said the continued failure of spot rates to improve on the Asia-Europe lane this month was more significant. “Peak season is over for the China-Europe lane,” the digital freight marketplace declared earlier this week.
“This week's $1,474 per feu is a mere 67% of where prices were just ten weeks ago - $ 2,201 per feu on 9 September. 2M resuming the AE2/Swan Asia-North Europe loop next month should see prices drop further.”
Simon Heaney, container research manager at shipping consultant Drewry, said the lowly levels of spot rates on westbound Asia-Europe services would have a dampening affect on end-of-year contract negotiations between shippers and carriers. “My early take is that Asia-Europe contracts will be marginally improved on last year, with the driver of the increase being greater BAF contribution,” he told Lloyd’s Loading List. “It will still be a challenging market in which to make profits, although supply pressures won’t be as demanding, with fewer ULCVs joining the fleet during 2019.”
However, further spot rate losses could increase downside risk for lines. He explained that while global container service spot freight rates had fluctuated through 2018, average contract rates had made stable gains.
“How sustained these gains prove to be will depend quite a lot on the state of the spot market over the next few months,” he said. “The spot market has a significant pull on contracting rates.
“Wherever spot rates reside at the time of contract negotiations, that tends to act as the starting point for contracts. Obviously particular focus is going to be on contract negotiations covering the Westbound Asia-Europe trade, many of which run for a year from January.”
He said carriers were under particularly strong financial pressure to boost contract rates to help cover the higher cost of fuel.
“Carriers are clearly going to be looking to boost rates and to recover the higher bunker costs that they had to endure in 2018,” he said. “Bunker costs have actually formed an increasing portion of contract prices in the past as a number of carriers have given a free pass to their bigger clientele.”
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