Ocean freight rates firm ahead of Chinese New Year
Ocean freight rates will remain firm ahead of Chinese New Year but face downward pressure in March, according to analysts, with some expressing surprise that rates have not risen further this year with containerships currently close to full.
The World Container Index, a composite of container freight rates on eight major routes to/from the US, Europe and Asia, fell 0.2% this week to $1407.58 per 40ft container, said Drewry. The Index is now down 21.5% from the same period of 2017 and is $175 lower than the five-year average of $1,584 per FEU.
But freight forwarder Flexport, in its weekly market update from 10 January, said space remains tight on transpacific and Asia-Europe lanes, adding: “End-of-year blank sailings have led to cargo overflows, further tightening space this week.”
On an individual trade lane basis, Flexport reported that rates have been declining slightly this week from Asia to the US West Coast, despite the lack of space, and from Asia to the US east coast, Flexport said the 1 January GRI was “holding tight”. On Asia-Europe, a GRI on 8 January was implemented at about $300 per feu.
Flexport expects general rate increases (GRIs) from lines due to be introduced on 15 January to drive upward pricing momentum on all three of these major lanes through to the start of Chinese New Year on 16 February. “Factories in China will be closed or operating at diminished capacity for at least four weeks around that time,” said Flexport. “Because of increased demand [ahead of the closures], rates will stay up and space will be more difficult to secure − both trends that will continue through the start of Chinese New Year.”
Lines are currently, therefore, in a strong position on the Asia-North Europe trade and most ships are currently full, according to ClipperMaritime consultant Neil Dekker. “Anecdotal feedback confirms that there are roll-pools of a few hundred boxes here and there at key Chinese ports such as Shanghai and Shenzhen,” he added.
Post-Chinese New Year, the slot supply-demand balance could move back in favour of shippers seeking lower rates. As reported in Lloyd’s Loading List, excess vessel supply is set to be a major drag on rates this year with the total new containership capacity due to be delivered in 2018 expected to reach 1.5 million teu. Given that more than 50% of the newbuilding deliveries are expected to be made up of ULCS from 14,000 teu to 21,000 teu, and most of this capacity is scheduled for delivery in the first half of the year, demand growth will need to spike dramatically to fill all the new slots available to shippers.
Decker said that despite the positive momentum for lines in January, it was striking that spot rates were not rocketing up. “Some 12 Ultra Large Container Vessels of at least 18,000 teu are due for delivery during 1Q18 and lines need to be careful about this deployment and how they manage void sailings – set against how quickly volumes come back on steam in March after the Chinese factory workers return,” he noted.
Eytan Buchman, VP for marketing at online freight market place Freightos, also confirmed that newbuilding deliveries would place a ceiling on ocean freight rates rises this year. “For at least two years now, we have been warned that container slot supply outstripping the growth of demand can only lead to unsustainably low pricing,” he added.
Ocean freight prices dropped significantly after last year’s CNY, which started on 28 January, compared to 16 February this year. In 2017, by the end of March, in comparison to the start of Chinese New Year, Freightos International Rate Index prices were only 63% of their January 28 level on the China-US West Coast trade, 77% on the China-US East Coast, and 69% China-Europe.
“They haven’t recovered to anywhere near pre-CNY prices since,” said Buchman. “We expect prices to track lower through 2018 than last year.
“The longer-term effects of a glut in supply will be that most larger carriers – and there may be other Hanjins, of course − will consolidate their position at the expense of smaller carriers. That’s because they are better resourced to withstand a long period of low pricing.”
Buchman added that it was unlikely shippers would suffer from a repeat this year of the slot shortages suffered during February-April 2017 on the Europe to Asia lane as alliances reshuffled their service networks.
“This seems unlikely with the supersize ships available for use on this lane,” he added. “In fact, there are only 20 ports that can accommodate the largest ships, and they are in East Asia and Europe.”