Freight rates cruising for a bruising

5/23/2012

Some brokers in the freight rate derivative market believe Asia to Europe/US prices will decline as the year progresses

The latest information from the Shanghai Shipping Exchange (SSE), supported to some extent by the World Container Index, shows that the comparatively high all-in freight rates quoted to forwarders for spot cargo out of Shanghai are still reducing.

The SSE’s average spot rate to Northern Europe base ports fell to US$1,742/teu on Friday, a 10% reduction compared with two weeks earlier, while the corresponding fall to Western Mediterranean base ports was 8%, to $1,872/teu.

In the eastbound transpacific tradelane to the US west coast, the fall was 3.4% to $2,330/feu, and the corresponding fall to the US east coast was 2.5%, down to $3,490/feu.

The information is the basis of why some brokers in the freight rate derivative market believe that all freight rates out of Asia to Europe and the US are set to decline over the remainder of the year.

This is predicated on the past correlation between spot rates and contract rates, although the delay of the impact of spot rates on contract rates is the subject of much debate.

It used to be around a month one year ago, but in the Asia-Europe tradelane the dramatic westbound increases that started to appear in the middle of December 2011 only began to have an impact on the average of all cargo shipped out of China in the middle of March, three months later.

The delay may explain why the average freight rates recorded on all cargo (spot and contract) shipped out of China to Europe and the US are still increasing according to the SSE’s China Containerised Freight Index.

Its average rate to Northern Europe last Friday ($1,901/teu) was 8% higher than two weeks earlier, while that to the Mediterranean ($2,045/teu) was 12% higher. The average to the US west coast ($1,063/teu) was 2.9% higher, and that to the US east coast ($1,302/teu) was 3% greater.

Needless to say, ocean carriers maintain that the rates they quote for spot cargo at any one time depend only on local circumstances, so should have little impact on contract rates, many of which are agreed for 12 months.