Container freight rate losses will be limited in Q2

5/12/2020

Container spot freight rates might soften this quarter, but if carrier discipline continues to hold losses will be limited, according to one leading analyst.

Despite the coronavirus lockdowns severely reducing container shipping demand and excess capacity already a problem for lines even before the outbreak of the virus, Maritime Strategies International (MSI) expects rate declines in the coming weeks to be minimal.

“We expect the remainder of Q2 2020 will bring about a weakening in spot rates, but a significant correction now seems unlikely given the evidence we have concerning carrier pricing discipline and the effectiveness of withdrawing capacity,” said the analyst.

MSI noted that despite lockdowns, at the end of April the Shanghai Containerized Freight Index (SCFI) Comprehensive Index sat 9.5% above its 2019 level, and the broader China Containerized Freight Index (CCFI) Composite Index was 6.1% higher.

“Although there is very little hard data concerning lifting volumes in Chinese ports and the recent period of relatively strong freight rates will in part have coincided with demand driven by the end of the Chinese lockdown, it is clear that capacity reductions are having the intended effect,” noted the analyst.

Later in 2020 the picture is less clear. MSI expects carriers to reinstate more services as volumes increase. Even so, a return to more “normal” operations is unlikely to see capacity on the major trades return to the levels of 2019.

However, a spot freight rates spike is also a possibility.

“Given the unpredictability over when and to what extent volumes return, it is possible that a surge in volumes could coincide with still-restricted deployed capacity by liners and drive an upswing in headhaul spot rates,” said MSI.

“On the other hand, the coming months will be a major test of liner company pricing discipline.”

S&P Global Platts said in its latest note that the easing of lockdown restrictions across many European countries, with others expected to follow shortly, was a “glimmer of hope” for carriers.

“This potential additional demand will be a blessing for container carriers who have already voided over 400 sailings so far this year, and with many more planned for the coming weeks,” said Platts.

However, the sector is still expected to struggle this year, not least since the World Trade Organization suggested trade could fall by as much as 32% in 2020, more than double the decline experienced just over a decade ago.

S&P Global Ratings noted at the end of April that it expects “a significant contraction in demand for container transport for at least the next several months,” revising its outlooks on Maersk to negative from stable, on Hapag-Lloyd to stable from positive, and maintaining negative outlooks on CMA CGM and CEVA Logistics.