Box freight rates dipped to new lows in 2015, says report

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Malta FreeportFreight rates on the east-west trades experienced “devastation” this year, with new all-time lows recorded on the Asia-Northwest Europe (NWE) and U.S. East Coast (USEC), as attempts to impose rate hikes failed abysmally, according to a new analysis by Freight Investor Services (FIS).

On the Asia-NWE route, the year was marked by repeated failed bids to implement general rate increases (GRIs), said FIS in its annual market review.

“The Asia-North West Europe trade started 2015 with a whimper rather than a bang, with the usual pre-Christmas New Year rate increases failing to materialize on any significant scale,” it observed.

“Those that did come into force were quickly eroded, a situation that repeated itself time and again throughout the whole of 2015, despite numerous failed attempts to impose GRIs.”

Meanwhile, in the USEC trades, rates rose spectacularly early in the year as the East Coast benefited from the West Coast labor dispute but the trend just as quickly fizzled out.

The start of 2015 on the U.S. trades was dominated by the contract dispute between the Pacific Maritime Association and the International Longshore and Warehouse Union, which led to significant congestion problems.

The resulting logistical chaos led to cargo diversion to the East Coast, causing USEC rates to rocket to over US$5,000 per forty footy equivalent unit (FEU) in February 2015, said FIS.

But the increase was short-lived and by the end of the month, rates on the East Coast “were in complete free-fall, falling by 42% by the end of the second quarter.” This trend continued throughout the remainder of the year and stoood at an all-time low of $1,506 per FEU as of December 11.

It wasn’t just the USEC that reported new lows this year, said the report. On the Asia-NWE trade, rates fell to as low as $205 per TEU in June, while new all-time lows were reached on the Mediterranean, Persian Gulf, Australia, South America, South Korea, and Southeast Asia trades.

This, said FIS, reflected the combination of oversupply and cascading that had plagued the market this year.

Looking ahead, the report does not have positive words for the industry. “Sadly for the carriers at least, 2016 doesn’t look like it will be much better.”

With an additional 1.3 million twenty foot equivalent units of capacity due to join the world fleet next year, the report foresees that Drewry’s Supply/Demand Index “will fall to its lowest level on record over the next few years, indicating that the overhang of excess capacity will be even greater than that experienced in 2009.”

The consultancy urged carriers not to keep to their traditional ways but to adopt new approaches to rate stabilization, including the use of risk management tools, locking in rates, improving margins, and bolstering shareholder value.

“By sticking to a policy of using contracted and spot rates and hoping for the best, they are playing their own freight rate casino—and it is evident their luck ran out some time ago,” it added.

Photo: Alecastorina93