Shanghai-Rotterdam ocean rates fell 14% last week

4/18/2018

Global container shipping rates are now a fifth lower than a year ago despite significant gains on key lanes over the last week, notably on transpacific markets, according to the latest analysis by Drewry.

The composite element of the World Container Index gained 4% last week to reach $1,219 per feu but remains 20% lower than a year earlier, while the average composite index for the year-to-date of US$1,401 per feu is $63 lower than the five-year average, said the analyst.

While Shanghai-Rotterdam rates fell 14% this week to $1,201 per feu, new transpacific GRIs at the start of the month proved, unlike a number of earlier GRIs which failed to gain traction, to be no April Fool’s Day joke – spot freight rates from Shanghai to the USEC spiked by $335 per feu last week to reach $2,354, while box rates from Shanghai to Los Angeles surged by $185 to $1,230 per feu. 

However, the latest Transpacific spot rate gains will not prevent shippers from securing improved terms during ongoing contract negotiations with lines as excess capacity and bearish demand will continue to put a ceiling on any rate gains, according to Drewry.

“A top-heavy delivery schedule sees two thirds of the 2018 ULCs order book delivered in the first quarter,” said a note. “Combined with sluggish post Chinese New Year volumes, that puts the shipping lines in a spot of bother for their transpacific contract negotiations.

“Drewry expects an end to the bull run in the contract market, which started in 4Q16, six quarters ago.”

Flexport reported yesterday that it expected lines’ April GRIs to hold on the Transpacific, but was bearish on the Asia-Europe trade where “space is open and we expect additional capacity to enter the market in April”.

Alphaliner said the downturn in freight rates since Q4 2017 would likely impact liner financial performance this year, not least because they had found it difficult to pass on rising costs to customers in the current market.

“Higher bunker prices will have a negative impact on carriers’ margins in 2018, with carriers unable to recover much of the higher cost from rate increases so far this year,” it added.

Alphaliner said the container shipping operations of 13 of the top 15 carriers recorded an aggregated operating income of $3.28 billion in 2017, compared to combined operating losses of -$4.19 billion in 2016, as average freight rates, based on sample unit revenue data from carriers, increased by 7.4% in 2017.

“However, the recovery has stuttered as carriers’ average operating margins slumped in the fourth quarter of 2017 to only 0.9% from a high of 5% in the third quarter,” said Alphaliner.

“The negative momentum has continued into the first quarter of 2018 as carriers faced falling freight rates, lower capacity utilisation as well as rising fuel and vessel charter costs.

“Backhaul freight rates, which surged in 2017 and helped to push up carriers’ margins last year, have also fallen back and look set to come under further pressure.

“The impact of a looming US-China trade war on container volumes also remains to be assessed.