CONTAINER RATES STILL BAD

Despite upward blip, container rates are very depressed.

Freight Investor Services LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES

Despite the jump shippers hold all the cards After last week’s surprise jump over the Easter holidays of $42 on the Asia-Europe trade, rates have continued their upward trend jumping by a further $92 to $339/teu on the back of the planned April 1 GRI of approximately $400 TEU. Initial reports suggest that the latest increase, although initially somewhat successful, has been eroded rapidly and hence only 34% of the planned total GRI has been reflected on the SCFI over the past two weeks. Rates year-to-date have now averaged at $412/teu, a decline of 53% compared to the same period of 2015. It’s also understood that contracted business has also been agreed at levels substantially below last year. Although contracted rates have remained somewhat opaque compared to the spot market, which is available via various indices, platforms such as the Norway-based Xeneta are beginning to shed light on contracted price developments. For example, data provided by Xeneta indicates that long term contracts of three months and more on the Asia-Europe trade have declined from a market low of $1,491 FEU recorded in April 2015 to just $483 FEU as of April 1 this year, a drop of 68%. (Click the image below to enlarge)

Source: Xeneta platform

Separate analysis of the spot rate data also shows that the spread between the market high and market low has widened over the past 12 months, in line with the market collapsing. Although there could be many reasons for this, it could be argued that with rates at such low levels some shippers may be less pressured into negotiating rates down. This is especially apparent given that even after paying an increase rates remain comparatively low on a historic basis. However in a commoditised market is the premium - which in some cases has been as high as a factor of x10 or $2,232 FEU - truly warranted?

Source: Xeneta platform

Despite the negativity surrounding rates on the Asia-Europe trade Hapag-Lloyd for one remains reasonably optimistic for rate prospects in 2016, suggesting that recent capacity adjustments will take time to filter through to an improvement in rates. Although this positivity is laudable, it must surely be questionable given rate developments not only in the spot market but also in contracted rates, as highlighted above. This is particularly true in a market in which volumes can be switched from contract to spot and vice versa quickly and with little consequence. As a result shippers still hold all the cards, to the detriment of carriers.