As box carriers recently announced plans to raise freight rates, a freight and commodity trade broker warned that general rate hikes after the Chinese New Year (CNY) will be hard to push through.
Freight Investor Services (FIS) said that rates on the Asia-Northwest Europe route fell ahead of the Lunar New Year by a further US$18 to $1,580 per standard container, although the pace of decline slowed slightly.
But it predicts that post-holiday, rates will once again decline more rapidly. “With fundamentals likely to be weaker than in the run-up to Lunar New Year holiday, any rate increases planned will be difficult to implement or maintain.”
FIS said this uncertainty in rates continues to burden the financials of carriers, which over the past week reported severe losses. “The carriers’ own financial reports make clear that stabilizing rates is a priority, especially on the battered NWE route.”
It added that with the continued volatility in the container market, carriers will do well to have an active risk management policy that will allow them to secure a proportion of their spot income at levels which will greatly reduce cash flow volatility and provide certainty to future revenue.
The container forward freight agreement curve gave carriers the opportunity to secure their average spot income for the remainder of the year at around $1,230 per TEU, which is higher than the average rate of $1,090 TEU reported by the Shanghai Containerised Freight Index for 2013.
But many shipping lines “are largely failing to hedge their future freight rate risk, in the process exposing themselves to highly volatile cash flows.”
Photo: Wally on Water
