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Container freight rates expected to continue rising

THERE is more good news for container shipping lines as more industry research points to a sustained recovery of freight rates through at least 2004, aided in a large part by the ‘China effect’.

In its latest supply and demand report, Containerisation International said freight rates on the dominant legs of the world’s top trade lanes are expected to continue rising at least through the end of 2004.

In a prelude to the peak summer months, second quarter freight rates on the Asia to Europe trade jumped 42% over the same period last year on the back of westbound utilization rates averaging 81% over the first half this year. This is expected to rise to 96% over the second half.

While this brought average rates on the trade up to US$1,570 per TEU, the report noted that this level is only now reaching the levels last seen before the slump of the first quarter of 2002. Utilization rates are expected to remain similarly buoyant through 2004.

“As freight rate levels drive ocean carrier profitability, the industry looks set for further recovery,” it said.

Much of the industry’s recovering health has been a product of China’s extraordinary growth, which saw its exports climb more than 32% over the first nine months this year, compared to a year earlier to US$307.7 billion while imports were up a full 40.5% to US$298.6 billion.

Calling this the ‘China effect’ the report’s author Matthew Beddow said: “Whilst the extraordinary growth in exports from China at the beginning of last year caught everyone by surprise, we believe that this year’s predictions are much more reliable.”

Last year’s surprise was due to the expectation among industry watchers that cargo growth would continue to be dominated primarily by consumer demand.

“The effects of offshoring, involving the transfer of production overseas, in this case to China, were not clearly quantifiable. The picture today is very different, enabling analysts to predict the future much more accurately,” he said.

Executive managing director of international consulting at Global Insights and a contributor to the report, Ben Hackett commented: “Historically, it was always a safe bet to use the rule of thumb that, for the G7 countries, GDP growth x 2.5 equated growth in trade.

“For the Asian tigers, we tended towards a factor of 4. During a recession, the measure became less clear. But all of that has had to be adjusted now, to help explain what has been happening in China.”The report also noted that the China effect has not only affected services to and from Asia but the other major trades as well. Citing the 10 new transpacific services which deployed over 50 additional vessels on the Pacific to cater for this year’s peak season, the report said this move helped to soak up surplus tonnage that could otherwise have been dumped in other trades, such as the transatlantic.

“Without this, maintaining a sensible balance between supply and demand in these other trades would have been impossible, and freight rates would have fallen,” it concluded.

And despite the additional tonnage put on the transpacific, the report noted that the average eastbound vessel utilisation during the first half this year remained respectable at around 84%. This level is expected to be maintained through 2004. Westbound utilization, however, currently languishes at around 36%.


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