"In Issue 341 of the Sunday Spotlight we created a model whereby the China Containerised Freight Index (CCFI) contract rate index was modelled around the spot rate data from the Shanghai Containerized Freight Index (SCFI)," said a SeaIntel press release.
"On Asia-USWC, we found that between 2009 and 2015, the model was 94 per cent correlated. The major change in price formation happened in the contract market in 2016, with the contract rates dropping 30 per cent below the levels indicated by the spot market, following the contract negotiation season in May 2016. The weakness is perpetuated into the contract season starting May 2017.
"It can be argued whether this implies contract rates which are too low or spot rates which are too high. However, given that the spot rates are prone to sudden downwards changes, this implies that carriers have been ineffective in getting contract rates to increase to a level implied by the spot market," said the release.
Said SeaIntel CEO Alan Murphy: "Given that the contract market is 30 per cent lower than where spot rates imply it should be, this indicates that if spot rates can be maintained, there is a potential for contract rate increase of 42 per cent to regain the balance between spot and contract rates."
Looking towards 2018, the carriers will highly likely be looking at increasing the transpacific contract rate levels similarly to the development seen on the Europe trade.