The forecast modest rise of container freight rates over the next 18 months will not be enough to save the industry from making substantial losses in 2016, shipping consultancy Drewry has claimed.
In the latest of its Container Forecaster reports, Drewry pointed out that there are distinct parallels between the current situation, characterised by spot freight rate volatility reaching unprecedented levels and unit industry income falling to record lows, and the 2008/09 financial crisis.
The consultancy said: “Drewry estimates that container carriers collectively signed away US$10bn in revenue in this year’s contract rate negotiations on the two main East-West trades.
“With annual Transpacific contract rates as low as US$800 per 40 ft to the US West Coast and US$1,800 per 40 ft to the US East Coast, carriers have done exactly what they did back in May 2009 in a desperate attempt to retain market share.”
According to Drewry, given that the first quarter headhaul load factors reached approximately 90%, “there was no logical reason for carriers to sign so much revenue away in one fell swoop”.
Despite admitting that spot rates on the core trades significantly improved following the General Rate Increases (GRIs) on July 1, the consultancy said that it is still too soon to understand if carriers have changed their approach to commercial pricing.
“The recent decision by the G6 lines to take a weekly loop out of the Asia-North Europe trade is a positive move,” Drewry added, “but similarly pragmatic and pro-active measures will be necessary across other sick trades if recent improvements are to gain momentum.”
“While the new alliance structures are bedding-in between now and April 2017, this work will take some time yet,” the consultancy added.
The firm pointed out that “some good repair work” was carried out in the Asia to East Coast South America trade, where spot rates went up from US$100-200 per 40 ft to over US$2,500 per box.
Neil Dekker, Drewry’s director of container research, said in a statement that the consultancy anticipates a “slightly brighter picture” for next year, with freight rates expected to improve by around 8%.
He added: “Carriers are expected to take some action to address overcapacity as cashflow attrition becomes more urgent and beneficial cargo owner (BCO) rates rise from this year’s lows.
“But once again, this cannot be seen as a genuine recovery since these so-called improvements must be set in context against the unnecessarily big rate declines seen in both 2015 and 2016.”