News / Blanking voyages holds ocean rates steady, but masks the real impact of Covid

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Container freight rates have yet to see any significant erosion, despite the coronavirus pandemic’s stranglehold on demand.

But the aggressive blanking programmes of carriers is disguising the real picture, according to Bimco’s chief shipping analyst, Peter Sand.

Indeed, for spot rates the SCFI cumulative index is still some 10% higher than 12 months ago, while its longer-term CCFI contract component is 9% higher.

The analyst said the blanking, combined with slower steaming and diverting ships around the Cape of Good Hope, was “artificially holding up freight rates”.

Just how long carriers will be able to protect rates by their capacity reduction measures is open to question, he says.

In ONE’s annual results report last week, the merged Japanese carrier gave its insight into current market conditions, saying the global economy was “rapidly deteriorating”, which was “seriously impacting the global supply chain”.

It said it had “executed a considerable scale of void sailings in April”, but that “uncertainties are still increasing for the situation after May”.

Despite the lower volumes currently being fixed on the short-term market, Mr Sand believes the spot indices remain the key to tracking developments in container shipping.

Notwithstanding that long-term contract rates generate the most money for carriers, their stability hides market volatility, according to Mr Sand.

Carriers often argue that their annual contracts are the cornerstone of their businesses and have in the past described the spot market as a “casino”. However, the percentage of spot and short-term contract business carried on the main tradelanes has increased year on year.

Many carriers like to give the impression they are not reliant on the spot market to fill their ships and that the ratio of contract cargo is a healthy “over 50%” level. But with increased volatility in the markets, caused by years of overcapacity and ever bigger ships, both shippers and carriers have become more hesitant to commit to longer-term deals.

A commercial manager for one Asia-North Europe carrier told The Loadstar recently that “over 60%” of the line’s liftings were now fixed short-term. And with our big ships coming on stream, I would expect that percentage to increase even further”.

According to Mr Sand: “The trends in the spot market are a much better reflection of the market conditions globally, as well as on individual tradelanes, and can therefore offer important input into the decision making processes.”

Mr Sand concluded with a cautionary note on the impact of the Covid-19 restrictions on the balance sheets of carriers.

“While the cost of freight per container has remained stable, the lower volumes and fewer sailings mean that although carriers can reduce some losses by blanking sailings, the disastrous effect that the coronavirus is having on their bottom lines is masked by the stable freight rates for the time being,” he said.