Shipping lines face a big struggle against strong headwinds ahead as their efforts to raise freight rates will continue to be rebuffed, according to research company Clarksons in a new report.
It said the woes of ocean carriers don’t appear to be diminishing anytime soon as spot container freight rates have fallen sharply in 2015 so far on a number of trade lanes, in some cases reaching their lowest levels in years. These declines, it added, reflect not just trends in freight market fundamentals, but also indicate some wider trends which now seem to be putting downward pressure on freight rates.
Before the onset of the global economic downturn in 2008, container freight rates were typically driven by broad, macro level factors, such as the Asian financial crisis and rapid growth in China, in tandem with periods of over- or under-supply depending on container ship ordering patterns.
But the financial crisis in 2008 forced operators to adjust to an unprecedented contraction in box trade of 9% in 2009, leading them to more actively manage supply to prevent the collapse of freight rates. These adjustments, said the report, include the idling of ships, slow-steaming, and cascading of surplus capacity.
“Whilst these efforts did provide support to freight rates, the ongoing battle against incoming supply created a high degree of volatility in rates too,” according to Caspar Donnison, who wrote the report.
In 2015, however, general spot freight rates have deteriorated quite sharply. The rate for shipping a box from Shanghai to Europe fell to the lowest recorded level by the Shanghai Containerized Freight Index at the end of April, to US$343 per twenty-foot equivalent unit (TEU), and the index on the graph fell from $1,273 per TEU in December 2014 to $837 per TEU in April 2015.
Fundamentals have played their part, as substantial box ship deliveries continue to drive robust supply growth (the 8,000+ TEU fleet has expanded by 6.6% in the year to date), while cascading opportunities appear to have become more difficult to find. Meanwhile, trade volume figures have been confusingly mixed in the year so far.
However, other factors have also played a role in the spot rate declines. Lower bunker prices in 2015 have provided shippers with additional leverage to drive down rates. Furthermore, with the increasing numbers of “mega’’ box ships deployed, the perceived need to maintain higher utilization of these vessels seems to have increased competition.
There’s a structural trend too, as the lower unit costs derived from operating, larger, more efficient vessels seem to be leading to a long-term downward trend in spot rate levels.
“In this climate, operators look to have a battle on their hands to provide support to mainlane freight rate levels this year, and will need to use all the tools at their disposal. Not only do market fundamentals seem challenging, wider industry trends also appear to be taking their toll,” said the report.
Photo: marc falardeau
