CONTAINER RATES

The rates cannot sustain financial viability for the industry. Big ships cannot support the pricing.  A major shakeout is coming.

 

Container rates fall again on major routes

Analysts see no let up in rate volatility as big ship deliveries continue.

By Chris Dupin |Friday, May 22, 2015

Spot container rates from China to destinations around the world fell again in the past week, according to the Shanghai Shipping Exchange.
Panelists polled for the exchange's Shanghai Containerized Freight Index estimated the spot rate from Shanghai to the U.S. West Coast to be $1,412 per 40-foot container (FEU), $107 less than a week ago, and to the U.S. East Coast to be $3,141 per FEU, $74 less than last week.
The estimated spot rates from Shanghai to Northwest Europe was $444 per 20-foot container (TEU), $214 less than the week before and to the Mediterranean $581 per TEU, $195 less than last week.
"Bigger ships and aggressive pricing are driving a volatility surge," said Richard Ward, a container derivatives broker for Freight Investor Services, noting that declines during the past two weeks have pushed rates in Northwest Europe "back to levels last seen in April prior to the carrier’s latest GRI attempts."
He said, "Reports suggest that despite relatively healthy load factors several carriers have been aggressively chasing rates down, with Maersk Line apparently changing its stance since its recent loss in market share over the first quarter."
Another rate index, the World Container Index, which is a joint venture between Drewry Shipping Consultants and Cleartrade Exchange, shows rates are becoming increasingly volatile.
Drewry said earlier this week, "The volatility of global spot freight rates since the start of 2015 has continued to increase in comparison to 2014, according to rate assessments on 11 routes gathered by the World Container Index (WCI). Price turbulence on the globally important Asia to Europe routes has been particularly high in 2015 with monthly volatility increasing 43 percent on average in comparison to 2014."
"The monthly volatility (a measure of how widely prices fluctuate in a 4 week period and therefore an indicator of the risk in a market) has increased by 14 percent on the WCI composite index, which is a weighted average of all 11 underlying routes in the first 20 weeks of 2015," added Drewry.
"The two most volatile routes among the 11 we track are Shanghai-Rotterdam and Shanghai-Genoa, with weekly rate increases of $1,000 or more seen during some weeks and monthly volatility of over 40 percent since the start of this year,” said Richard Heath, director of WCI. Taking all routes into account, the WCI composite index went from $2,092 per 40-foot container in late February to $1,263 per 40 foot container in late April, before increasing again to $1,611 on 14 May.
Philip Damas, director at Drewry, which jointly owns WCI alongside Cleartrade Exchange, said, “The World Container Index assessed by Drewry tracks and documents what is an increasingly volatile market. The reduction of spot rates is welcome by most shippers, but many non-contract shippers are not currently equipped to cope with huge volatility in their freight costs."
Ward added, "With apparently no let-up in the ordering of ultra large container vessels this rate volatility is likely to worsen yet further. In the search for lower slot costs, carriers are sacrificing flexibility for economies of scale, which has the knock on effect of adding to rate volatility.
"Any future cancelled sailings will have an increasing impact on market fundamentals, leading to greater rate swings and disruptions. It’s not an issue that goes unnoticed by carriers with NYK most recently recognizing that its liner business is 'unstable' and that 'profitability fluctuates violently in accordance with supply and demand,'" he said.