Average freight rates for 2014 will continue to be lower than in the previous year, with carriers on effective cost-cutting programs with the ability to offer more competitive pricing, according to the latest industry assessment by Drewry.
The research group’s Container Forecaster report for the second quarter said cost reduction is the top priority of box carriers as they battle with the pressure of falling freight rates.
Drewry estimates that on the headhaul trans-Pacific trade alone, “carriers have given away about $1.25 billion in annual revenue via the lower annual contracts they signed with beneficial cargo owner clients in May.”
They also signed new annual contracts on the Asia-Europe trade earlier in the year that were US$150 to $200 per 40-foot container lower than in 2013, it added.
“On the positive side, they may have secured base cargoes to fill their ships at a low price. But this puts more pressure on carriers to try and recover revenue from the spot market. Drewry believes that volatility in the spot market will remain high this year.”
Moreover, the report highlights the widening gap between “the positive financials of the few carriers really focused on cutting costs and the rest of the top 20 lines.”
While supply and demand remain key drivers of freight rates across all trades, those carriers cutting their costs are also better equipped to offer lower rates and in real terms they are in fact passing back these benefits to their customers, it further states.
Industry unit costs per TEU are forecast to decline by 2.5 percent this year, and strategies such as slow steaming, re-designing networks, and buying bunkers in Russia are crucial to this.
But Drewry said carriers will struggle to make a profit “since we are also forecasting unit revenues to decline by a similar amount.”
The blocking of the P3 alliance by the Chinese authorities is also disappointing for the industry since the alliance would have presented an opportunity to help stabilize the main trades in terms of capacity management and efficient use of assets.
“That chance is now missed,” said Drewry. “A mature debate is required to help balance the benefits of higher economies of scale, alliance consolidation and the need to control an oligopoly of mega alliances.”
Neil Dekker, Drewry’s director of container research, added: “It could be that the huge task of adequately matching supply and demand at the global level and on a consistent basis—which ultimately helps to drive freight rates—is simply beyond the industry, and we do not mean this as a condescending remark.”
He explained further: “This is an industry where accurate volumes on many trade lanes are unknown—simply because there is no unified and agreed system of accounting. This is an industry where relatively few shippers can provide accurate volume forecasts. This is an industry where the constant desire to launch bigger ships in order to reduce unit costs can only ever logically be at odds with the aim of matching supply and demand.”
Photo: Bohman
