Container Rates Continue Downward Spiral

Charles Popick Newsletter, Shipping Costs

Spot pricing has slipped again on almost every major east-west trade and remains significantly below 2017 levels, a trend that could be compounded by the introduction of additional capacity during the first quarter. 

APRIL 16, 2018
Container freight rates continued to decline, with composite pricing on the eight major east-west routes measured by Drewry's World Container Index down another 2 percent to $1,192 per FEU compared with the previous week.
The latest reading of the composite WCI was also 18 percent below the same time period last year, when freight rates had already began to climb back out of their post-Lunar New Year doldrums. Last year also represented a marked turnaround from 2016 rates, which reached near-historic lows as carriers scrambled to fill ships, often at prices that did not even cover operating costs. Those rock-bottom rates resulted in a disastrous year for carrier profitability, as the industry lost a combined $5 billion and several major carriers were consolidated via mergers and acquisitions or, in the case of Hanjin Shipping, went bankrupt and exited the industry entirely.

On an individual trade lane level, pricing from Shanghai to Rotterdam fell only 1 percent from the previous week to $1,189 per FEU but were down 23 percent on a year-over-year basis.
Eastbound transpacific rates from Shanghai to Los Angeles similarly slipped 4 percent from the previous week and 17 percent from the same 2017 period for $1,180 per FEU, while pricing from Shanghai to New York showed the only week-over-week increase of the various routes tracked by the WCI, rising 1 percent to $2,370 per FEU, which was still a 3 percent.
And on the supply side, this downward trend in spot rates could be further compounded by the introduction of additional capacity during the first quarter of 2018.
 Although international trade demand is increasing at a relatively steady rate thanks to a strengthening global economy and rising consumer spending, carriers will continue to have a hard time keeping rates at a reasonable-i.e. profitable-level if they continue to introduce capacity faster than they can fill their ships. Just last week, for example, South Korean carrier Hyundai Merchant Marine confirmed an order for 20 new containerships, 12 with more than 20,000 TEUs of capacity and eight 14,000-TEU vessels, all part of the company's plan to grow its fleet to a carrying capacity of more than 1 million TEUs .

CPC Commentary:
Same story different year. Every year there is an over supply of capacity for ocean services and every year, there are ocean carriers taking delivery of new vessels. It will be a Shipper's market for the 2018 season. This is a great time to lock in rates with carriers who are seeking volume.  

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