Tariff threat makes no waves as spot rates tread water ahead of new GRIs
Container spot freight rates saw another week of gentle declines across all the major trades, ...
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By Mike Wackett
Freight rates on the Asia-Europe trade suffered a double-digit decline for a second consecutive week last week, according to the Shanghai Containerised Freight Index, with rates from Shanghai to north Europe falling by 10.6% or $146 to $1,233 per TEU.
Elsewhere, rates from Shanghai to Mediterranean destinations also plunged by a week-on-week 10.6% to $1,264 per TEU completing the sorry story for the carriers operating in this trade lane.
This latest decline in spot rates is a further blow to the carriers on the sickly Asia-Europe trade lane where rates have now crashed by almost a third from January’s peak.
According to Ricky Forman, container FFA broker at Freight Investor Services, this latest rates “hammering” represents a “significant hit to carriers’ income”. He said: “At current levels of erosion, rates could well be under $1,000 per teu by the end of March causing yet more cash burn for the majority of liners.”
Some of the carriers had expected to jack up rates after the Chinese New Year by the normal strategy of GRIs but according to Mr Forman this is doomed to be ineffective given that implementation dates across the carriers varies from March 1 to March 15.
Moreover, FIS noted that CMA CGM has announced its GRI for April 1 thus “undermining efforts from its competitors to raise rates during March”.
“As a result”, said Mr Forman, “it has once again been proven that the tools available to carriers have limited effectiveness and cannot be relied upon to effectively manage their risk to the spot market.”
And this is bound to cause serious concern for shipping lines in their batle for fianncial survival, Mr Forman warned: “Some carriers may argue that this risk is limited given their contract/spot mix, however as shown by NOL’s results [last week] weaker spot rates have a significant impact on the overall business. The company’s average revenue per box has a 95% correlation to the spot market, ensuring that the continued volatility in the market negatively impacts their bottom line.”
This takes on a special significance next week, when around 2,000 of the great and the good of global container shipping will assemble at the annual Trans-Pacific Maritime (TPM) conference in Long Beach, California to debate and discuss the state of the industry.
No one needs reminding that the 14th TPM comes at a crucial time for ocean carriers, who have collectively failed to make a profit in four of the past five years.
While event organiser, the Journal of Commerce has put together a comprehensive and varied agenda, the elephant in the room will be the extreme volatility of freight rates.
Traditionally, TPM normally marks the start of rate negotiations ahead of May contract renewals on the transpacific trade lane. Unfortunately for embattled carriers this will take place in a theatre of negativity which has seen spot rates between Asia and the US West Coast decline by 8% since the beginning of the year, and they shed a further $96 per 40ft to $1,945 on the SCFI’s Shanghai-US west coast last Friday.
Trans-pac carriers have planned a $300 per 40ft general rate increase from mid-March and a further as yet unspecified increase on May 1, but against the current backcloth they will do well to fix contracts above a breakeven level.
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