Friday, January 8, 2016


Per FIS, Asia-Europe GRI for Chinese New Year are collapse.

Freight Investor Services

Weekly Commentary Jan 8th

New Year: Old Tools - GRIs and prisoner's dilemma

After the jump recorded on the SCFI over the festive period, rates are once again in freefall, suggesting the GRI has failed to gain any meaningful traction on the North West Europe trade.

Rates to NWE dropped $300 to $932 per TEU this week, representing the second largest decline in dollar terms recorded on the SCFI. In fact this decline was only marginally below the biggest decline ever recorded of -$314, which was reported back in November 2015.

Such large declines, even post a GRI implementation, represent a worrying trend for carriers in the run-up to Chinese New Year.

However this negativity is not unexpected. The same trend was witnessed in 2015 when carriers failed to make GRIs stick in any meaningful fashion prior to Chinese New Year.

Figure 1 shows the development in rates over the Jan-Mar period during the past three years and in every instance rates have been highest at and prior to CNY, before falling thereafter.

With rates falling as rapidly as they have done this time, carriers are planning a further round of GRIs and Peak Season Surcharges for January 15 at around $500 per TEU. Although a partial implementation shouldn’t be ruled out, it is unlikely to have a long lasting impact on rates.

As a result, the average rate during January is likely to be lower than that during 2015. If the aforementioned trend holds true between January and March then rates for the whole of Q1 2016 are likely to be lower than the same period of 2015.

Figure 2 shows how the average rate over the first three months of the year are typically higher than any other quarter, suggesting carriers will be in for another tough 12 months.

Fig 2.
This is a view that has been reinforced by Drewry who expect collective losses for the industry to widen this year to over $5bn.

Despite the well reported oversupply and the impact on freight rates Alphaliner has reported that a total of 255 vessels were ordered last year, representing 2.34m TEU. In particular 60 ultra-large vessels of 18-000-22,000 TEU were ordered in 2015, accounting for 24% of all ships contracted.

It therefore seems that carriers have decided not to address the fundamental issue of oversupply in their race to the bottom. The current ordering of vessels - itself almost a take on the classic ‘Prisoner’s Dilemma’ - will surely create some casualties along the way.

Source: Shanghai Shipping Exchange.