News / New blow for carriers as Shanghai-Europe box rates fall below 'break-even' $1,000

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Sea freight rates on the Asia-Europe deepsea route continued to fall this week, and have now dipped below the crucial break-even level of $1,000 per teu.

The Shanghai Containerised Freight Index’s (SCFI) route between Shanghai and north-west Europe was recorded at $988 per teu, a fall of $122 per teu from the week before, and it means rates have declined some 44% since the beginning of the year, when they were buoyant in the pre-Chinese New Year build-up.

Sources in the market said the decline was due to the usual combination of poor carrier discipline over pricing, and continuing vessel overcapacity, exacerbated by weak demand in Europe – none of which is surprising.

However, what has surprised forwarders in the trade has been the seeming willingness by carriers over the last week or so to abandon hope that the March general rate increases (GRIs) – announced in January and February and slated for introduction on either the 1st or 15th of the month– would stick.

“Most spot rates on an FAK [freight all kinds] basis are $900-1,000 per teu out of China base ports to Northern Europe, and they are going to fall further,” one forwarder told The Loadstar.

He added that Hong Kong-based carrier OOCL had sent him an advisory this week announcing that its FAK spot rate on the route was to be reduced by another $150 per teu – a discount that would be valid until the end of this month.

“The irony, if you can call it that, is that the line had earlier announced a GRI to come in next week, so this completely negates that,” he said.  “And that’s just one example – there is total indiscipline on pricing by all the carriers.”

The ineffectiveness of the March 1 GRI had been predicted by container derivatives broker Freight Investor Services (FIS), which had noted that, following several March GRI announcements French carrier CMA CGM had named 1 April for its next GRI – effectively dashing hopes that widespread increases would be seen before then.

FIS’s Richard Ward said today: “As we approach April, liners will no doubt hope for a proportion of the planned GRI to come into force; however, currently the forward market is pricing April with only a 10% premium to March, suggesting the increase will offer little respite.

“This reflects the market’s views for further declines in the run up to April and the expectations that the GRI will not be sustained due to market fundamentals. For carriers, this represents a significant challenge as the April increase is unlikely to ensure they return to profitability for the given month.”

While the use of forward freight agreements (FFAs) in container shipping remains marginal, compared to the size of the physical market, FFA pricing does bear some correlation to actual spot rates, since, because the mechanism is used as a hedging tool, the FFA price is always at a premium to the anticipated actual rate – all of which points to further rate erosion.

Given that this past week saw 10% shaved off the SCFI, there is every possibility that rates will be at less than $800 by the end of the month – and even if carriers could push through a $450-plus GRI at the beginning of next month, that would that give them a little room to play with, until rates again drop below break-even.