Drastic measures needed to halt a collapse in rates

Freight rates on the Asia to Europe route have dropped to their lowest levels on record as carriers face off in a damaging rate war amidst weak vessel utilisation.

Alphaliner says that the SCFI spot rates from Shanghai to North Europe have reached an all-time low of US$243/teu and could fall further with rates as low as US$150/teu reportedly offered by carriers. Current spot rates are well below breakeven levels, estimated at about US$800/teu based on Alphaliner’s calculations. Effective freight rates, after deducting fuel surcharges, are now negative for carriers with BAF (bunker adjustment factor) averaging US$337/teu in June.

Although carriers have announced another round of general rate increases (GRI) ranging from US$900 to US$1,200 per teu on July 1, any gains are likely to be short lived if not accompanied by effective capacity rationalisation measures. The widespread practice of void sailings has proven to be ineffective so far. Despite this, carriers’ reluctance to permanently withdraw excess capacity have foiled all of their previous rate restoration efforts.