Asia-Europe ocean freight contract prices up 120%

5/18/2017

Long-term contract prices for Asia-Europe ocean freight services negotiated in the last three months are averaging more than double their rate levels at the same time last year and are 10% higher in the second quarter than they were in Q1, according to new data from market intelligence firm Xeneta.

Xeneta highlighted a clear increase in the pricing level of long-term contracts for China main ports to North Europe main ports routes negotiated in the last three months, with an average rate of US$1,396 for a 40ft box shipping in mid-May – an increase of 120% compared with mid-May 2016.

“What’s more interesting is that long-term contracts for sailings so far in Q2 versus Q1 have increased 10%, on the market average price,” noted Xeneta CEO Patrik Berglund.  “Long-term contract negotiations were postponed by many European shippers with the hopes that the container rate rally that started in Q4 would halt. That wasn’t the case, and perhaps many shippers may be kicking themselves.”

Berglund said these price improvements would almost certainly lead to better financial performances by the likes of Maersk and other major container lines in their second-quarter results. “I would be stunned if Maersk’s Q2 results are not positive after the strong rates being contracted two months into the second quarter,” he said.

“With negotiations seemingly completed in Europe, Xeneta is currently showing that containers with contracts valid until mid-August sit at a market average price above $1,400. There doesn’t seem to be a sign of a substantial decrease as we move into the summer, and if carriers can keep or even further improve the market conditions, we’ll see better numbers for Maersk and perhaps for other carriers as well.”

As reported yesterday in Lloyd’s Loading List, higher rates are the biggest short-term challenge facing ocean freight forwarders and shippers, according to DHL Global Forwarding’s global head of ocean freight Andreas Boedeker, who believes strong demand and carrier discipline will mean ocean freight prices remain high this year.

In an interview published this week in Lloyd’s Loading ListBoedeker said trade had developed more favourably this year than many market participants expected.

“Supply and pricing discipline in the carrier markets has also increased versus 2016,” he noted. “This will mean forwarders and shippers have to manage higher rate levels and be more flexible in the routing and carrier options they use.”

As also reported yesterday in Lloyd’s Loading List, world container traffic has grown much more strongly than anticipated in the first quarter of 2017, growth that will require an upgrade to analysts’ full-year forecasts, container shipping specialist Drewry observed this week. Provisional trade lane data from Container Trades Statistics (CTS) indicates that world box traffic surged by 10% year-on-year in 1Q17, with intra-regional trade as the primary driver of growth, with volumes up by 17% versus 7% for deep-sea traffic.

The small sample of carrier volume information that has been published so far alongside lines’ first-quarter financial statements also goes some way to corroborating CTS’ big-growth story, Drewry said. The average volume growth for the six carriers in 1Q17 was 10%, with a wide spread between the slowest growing company Zim (4%) to the fastest growing line MOL (17%). Between them the six lines operate about 30% of the world’s containership fleet, the analyst said.

According to the World Container Index assessed by Drewry, spot rates on the benchmark Shanghai to Rotterdam lane held fairly firm last week, slipping back by around 3%. But at US$1,869, they remain around 39% higher than the same time past year. That follows a 23% increase in ocean freight spot rates for containers on the benchmark Shanghai-Rotterdam lane the previous week. Drewry expects rates to fall further this week “as GRIs are getting discounted”.

The composite index of the World Container Index assessed by Drewry was down by 3.4% last week but remains up by 40% from the same period of 2016. The average composite index for the year to date is US$1,591/40ft container, $118 lower than the five-year average of $1,710/40ft container, but 40% higher than a year ago.