Spot freight rates could increase up to 40pc: Drewry
AS carriers begin contract negotiations for the year ahead, the container freight market is strengthening and Drewry said some shippers could see contract rates rise 20-40 per cent in worst case scenarios.
Simon Heaney, senior manager, supply chain research at Drewry said spot container freight rates, which strengthened at the end of 2016, are trending upwards in most, but not all trades.
The London-based consultant said container carriers lost about US$1 billion in the third quarter of 2016, and is projecting a loss for the industry of $5 billion for the year as a whole, in what it said was one of its worst years ever.
After four years of rate reductions between 2013 and 2016, Drewry is forecasting that in 2017, average freight rates (a blend of spot and contract rates on all routes globally), will rise 12 per cent. On East-West routes, it projects the increase will total 14 per cent.
However, Drewry did say shippers should be prepared for worst case scenarios where contract rates could increase 20 per cent to 40 per cent in 2017.
Still, the improvement in rates will take a long time to accomplish. Both 2017 and 2018 "will be challenging on the supply front," despite the large number of ships that were scrapped in 2016, Drewry said.
Rates are rising because of improved demand, rising fuel prices, and better commercial discipline by carriers in the wake of a wave of mergers and acquisitions among carriers during the past year and a half, which has improved the bargaining power of carriers, the American Shipper reported.
Mr Heaney said that following the Hanjin bankruptcy, some shippers want to deal with more financially secure carriers rather than securing the very lowest rates.
The current environment is the opposite of the situation a year ago, "when there was no freight rate inflation anywhere to be seen," Mr Heaney said.
In the fourth quarter of 2016, spot rates from Asia to Europe soared 67 per cent year-over-year. Over the same period, eastbound transpacific rates rose 35 per cent, while rates from South China to Australia increased 45 per cent.