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Ocean freight rates still on the slide

Container rates on all four major trade lanes declined last week, fuelling speculation that prices may remain soft for the rest of the year.

Ocean freight rates still on the slide
20 January 2011 - 12:22

Container rates on all four major trade lanes declined last week, fuelling speculation that prices may remain soft for the rest of the year.

According to the Shanghai Containerised Freight Index, rates on services from Shanghai to Europe slipped by US$39 to reach $1,342 per teu on 14 January, compared with 7 January, while rates to the Mediterranean fell by $21 to $1,212 per teu.

Over the same period, prices on services heading to the US west coast were down $39 to $1,977 per feu and on services to the east coast were down $42 to $3,198 per feu.

The falling rates come despite the Shanghai Shipping Exchange estimation that ships on the Asia-Europe and transpacific trades were sailing with a utilisation rate of around 90%.

There is speculation among container derivatives brokers that predictions of a year of stable rates may have been premature and that rates may continue to decline.

Broker Freight Investor Services said: “Uncertainty over how firm rates will be in the short term, with carrier rate increases failing on both Europe and US routes and doubt over their ability to resist chasing marketshare later in the year as new tonnage comes on stream, is fuelling speculation that rates will be soft for most of the year.

“All depends on the ability of carriers to manage their capacity to ensure that the market remains stable.

“There is the possibility, however, that an under- then over-correction of supply [the number of vessels in active operation] by carriers – all waiting to be the last one to blink in a market with a delicate supply demand balance – may drive greater volatility.”

Another container derivatives broker, GFI, blamed the rate declines on lower-than-expected orders at Chinese factories during the run-up to the traditional new year holiday next month.

It added low contract rates currently being negotiated were another indication that rates may fall further.

“Physical spot rates [on Asia to Europe services] are being quoted in the quantum of $1,300-$1,350 per teu, with rates only valid for a week. The short validity suggests that rates will fall even further next week, fuelling further volatility.

“Some shippers have suggested that they are trying to negotiate annual contracts as low as $1,050 per teu for the rest of 2011. This suggests that rates have another 22% to fall from current levels.”

 

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