Friday, November 13, 2015

SHOCKING RECAP OF 2015 CONTAINER LINE RATES

By Richard Ward--




 Freight Investor Services
LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES

Weekly Commentary

Rate declines on the Asia-North Europe trade have accelerated in recent weeks with last week seeing the largest decline ever recorded on the trade in dollar terms of $314.

This week the drop of $265 was the largest ever in percentage terms at 39.3% and means rates now stand at $409 TEU.

This year rates have declined by more than $150 in a single week on 10 occasions. Previously since the launch of the SCFI in 2009 such large weekly rate declines had only been witnessed 4 times on the trade, suggesting worsening rate volatility and continued weakness on the trade.

Such large weekly rate declines have been exacerbated by forwarders providing quoted rates to shippers that have yet to be secured with a carrier, resulting in an added requirement to force the market down to meet the pre-arranged unsecured rate.

Such risk in the market is not uncommon, however forwarders should at least be referring to the forward curve in such instances to better understand the risk involved and how it could be reduced whilst still wining new physical business.

Elsewhere last Friday saw the release of Maersk’s Q3-2015 results which showed a decline in average freight rate per box of 19% year-on-year, reflecting the marked deterioration in rates over the past 12 months.

With contract rates being discussed for next year in the region of $700 FEU, almost a 50% reduction on last years contracted rates, there will be extreme pressure on carriers to boost the struggling spot market during 2016. Given rate developments this year and the likelihood for continued poor fundamentals this looks increasingly difficult to achieve and could result in yet more dismal results for the industry as a whole.

Carriers do of course have the option to hedge some of this future risk at levels substantially above the aforementioned contract rates and should appear increasingly attractive to those looking to minimise losses and secure future cash flows.