Rates up but 2017 still holds further uncertainty for box shipping

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Freight rates have increased, but the global container shipping market faces further volatility in 2017 arising from an unpredictable economic and geo-political situation, according to Xeneta.

Although rates have risen significantly from the historic lows of early 2016, structural problems continue to undermine stability, while macro-economic and political factors are casting long shadows on the horizon, said the global benchmarking and market intelligence provider.

The year 2016 was a tumultuous year for carriers, defined by low rates, overcapacity, and the subsequent collapse of Hanjin. However, the final months of the year saw generally higher short-term rates, with the market average price for 40-foot containers on the world’s number one trade route—Far East Asia to North American main ports—climbing from a low of US$1,164 in April to $1,716 by the close of 2016.

The same rates on the number two route—Far East Asia to North Europe—climbed from lows of $791 to $1,878 by the end of the year.

“Prices rose from Q3 into Q4 before flattening out a little,” said Xeneta CEO Patrik Berglund, “but the carriers’ position improved significantly from the dire situation they found themselves in early 2016.”

So far in 2017, Xeneta said the long-term rates are high in relation to 2016—actually closing in on 2015 levels—but the trend is to put the typical January negotiations on hold.

“There’s such uncertainty in the market that shippers are stalling coming to the table, they’re unsure of where they stand,” Berglund stated. “The fact that the carriers are prepared to accept this delay shows they believe they’re in a strong position—that prices will continue to develop over the coming months, allowing them to lock in higher rates when talks finally begin. This is a clear indication of positive sentiment from their side.

“So, at the moment, it looks like a seller’s market and if the carriers hold firm then shippers will eventually have to accept higher rates. However, the fact of the matter is there remains a structural overcapacity of containers-to-cargo. That puts carriers in a weak position and creates huge competition for business. So it only takes one or two carriers to drop rates and chase market share and, lo and behold, prices fall again. The volatility will return.”

As it stands, further uncertainty is provided by an unpredictable economic and geo-political situation, as Berglund explained.

“With the looming inauguration of Donald Trump, the continued fallout from the Brexit vote and a rising tide of more ‘insular’ political thinking, the outlook for global trade is, well, interesting,” he noted. “Carriers will be paying close attention to developments.”

At the same time newbuild orders have plummeted, and shipyards are seeking to stay in business by offering vessels at not-even-break-even prices. “If this entices owners to place orders then we have the prospect of additional overcapacity and further downward pressure on rates. That is not what the sector needs right now,” he said.

Despite these warnings, Berglund insisted the situation has improved for carriers, but that both they and shippers need to stay on their toes: “As we saw last year, especially with Hanjin, the market can literally transform overnight. While it is looking promising for carriers right now, that can change rapidly, so all parties should try and follow market trends as closely as possible.”

Photo: Danny Cornelissen