Ocean freight rates set to remain firm despite continuing weak demand – analyst

6/4/2020

With a demand surge unlikely, carriers will continue to use blanked sailings to prop up container freight rates through the 2020 summer peak season, according to Maritime Strategies International (MSI).

As reported in Lloyd’s Loading List, MSI is bearish about a demand-led recovery for container shipping this year, predicting that volumes will remain substantially lower than in 2019 during the second half of the 2020.

However, the analyst expects the freight rate resilience seen throughout the coronavirus pandemic to continue.

“While the remarkable fall in bunker prices will surely soon be reflected in freight rate assessments, evidence so far suggests freight rates are likely to continue their recent healthy run,” said the analyst.

MSI noted that liner company volume performance in the first quarter of 2020 (Q1 20) was quite varied, concluding this largely reflected differences in trade lane exposure.

“The Q1 results did not point to clear evidence of lowering rates to grab market share,” it added. “We expect this will broadly remain the case in the coming quarters.

“Main lane freight rates are likely to remain above 2019 levels.”

The success of lines in keeping rates buoyant thus far was clear in the latest pricing data. The World Container Index assessed by Drewry, a composite of container freight rates on eight major routes to and from the US, Europe and Asia, decreased by 1.1% to $1,576 per 40ft container (FEU) last week but was still 22% higher than a year ago. Shanghai-Rotterdam prices fell 2% week-on-week to $1,694 per FEU but were up 16% compared to a year earlier.

According to Freightos, China-US West Coast prices fell 2% last week to $1,636 per FEU but were 32% higher than a year ago. And China-US East Coast prices fell 1% last week to $2,578 per FEU to leave them level with prices a year earlier.

MSI noted: “While it is true that, moving ahead, liner companies will face a more complicated set of trade-offs and variation across trade-lanes when scheduling deployed capacity – the extremity of the simultaneous COVID-19 lockdowns did at least provide liner companies with a large and obvious target when calibrating capacity withdrawals – we expect that overall, the recent practice of trimming capacity quickly and at quite short notice will continue.”

For shippers on the Asia-Europe lanes, Flexport warns that capacity cuts could help push up rates in the weeks ahead as space becomes scarce. The forwarder reported that lines had successfully implemented a General Rate Increase (GRI) on westbound services on 1 June, with another scheduled for mid-June.

“Space is tighter; please book three weeks prior to cargo ready date,” it informed customers.

Flexport also highlighted higher than usual GRIs from China to the US due to be implemented from 1 June that may help to drive up transpacific prices.