News / Asia-Europe 2015 contract rates up, but analyst warns of spot market declines

© Khunaspix Dreamstime.

In its quarterly update Container Freight Trends & Outlook supply chain consultant Drewry said it expects global freight rates to fall again this year with carriers focused on cost reduction at the expense of service levels.

And in an accompanying webinar Stijn Rubens, senior advisor intermodal & supply chain at Drewry, said: “Global spot rates are on a downward trend which will continue throughout March.”

This does not bode well for the raft of $750-$1,000 per teu Asia-North Europe general rate increases (GRIs) announced by many carriers for implementation effective 1 April, especially after reports of disappointing load factors post Chinese New Year.

Neither is the outlook for the remainder of the year particularly rosy, especially on the Asia-Europe trades where capacity is estimated to increase by 7% between Asia and North Europe and a massive 19% between Asia and the Mediterranean.

Drewry expects 2015 to see a further 63 new container vessels of 10,000 teu and bigger received by ocean carriers, as well as another 67 vessels in the 8,000-10,000 teu range delivered to an industry already hobbled by excess capacity.

“No carrier will want to see its new vessel half-empty on its maiden voyage,” said Mr Rubens, claiming this would add to the downward pressure on freight rates.

Drewry’s global freight rate index started this year $115 below the level of January 2014, which in turn had been $220 down on January 2013.

The index is heavily influenced by what is happening on the east-west trades with Asia-Europe proving to the biggest drag, shedding $715 compared to January 2014.

Nevertheless, the January round of Asia-Europe contract negotiations recorded a modest 1% year-on-year gain according to Drewry research, which it said was driven by carriers exiting previously unprofitable 12-month commitments in favour of taking their chances on the volatility of the spot market.

Elsewhere, the transpacific contract renewal season is in full swing, with new deals commencing in May and Drewry is more optimistic that carriers will make some gains against a backdrop of stronger economic fundamentals and more robust spot rates.

With an estimated 40 extra ships needed by transpacific carriers to overcome the scheduling problems caused by the US west coast port congestion, carriers desperately need to negotiate contract improvements to mitigate the additional expense.

On the Asia-Europe trade lane, however, even if utilisation levels improve into the peak season there is no guarantee of a spike in rates.

Indeed, 2014 saw more evidence of the growing disconnect between load factors and freight rates when carriers struggled to convert strong vessel utilisation levels into higher freight rates.

“Carrier will again be challenged by over capacity in 2015,” said Mr Rubens, “they will continue to focus on cost cutting measures at the risk of service levels.”