-
Spot freight rates to remain high in the short term, which will flow through to contracted rates for 2021
-
Current shipping rates are unsustainable in the medium term, being susceptible to various risks
-
Total volumes shipped from Asia to North America exceeded 2019 levels by over 7% in 2020
-
A decline in volumes on the Asia-Europe route by about 5% in 2020 indicates growth potential in 2021 as demand recovers
Expect container shipping rates to stay high in 2021, driven by rebounding demand for goods, supply chain disruptions, and tight capacity management, Fitch Ratings said.
The credit rating agency on February 23 forecast that spot freight rates will remain high in the short term, which will flow through to contracted rates for 2021.
But although container shipping companies performed strongly in 2020, the agency believes the current shipping rates are unsustainable in the medium term, as the sector is susceptible to rate volatility and risks of weak economic recovery and trade protectionism, requiring constant prudent capacity management.
“The sector remains subject to risks of geopolitical tensions and trade protectionism, uncertainty about economic recovery paths in different regions, as well as ESG-driven initiatives such as IMO 2020 and other emission regulations,” Fitch Ratings added.
It noted that a combination of rebounding demand for goods in the second half of 2020, supply chain disruptions such as container box shortages and port congestion, and more strategic capacity management drove container freight rates up, especially on the routes from China to Europe and the US.
Shipping one 40-foot container from China to Europe or the US West Coast now costs over US$8,000 and $4,000, respectively, from well below $2,000 a year ago, according to Freightos Baltic Index.
Trade volume recovery was fueled by a change in consumer spending habits during the pandemic—ordering more manufactured goods while saving by spending less on services, such as leisure and restaurants. It was further supported by inventory re-stocking by businesses that faced acute supply chain disruptions and increased demand for personal protective equipment.
Total volumes shipped from Asia to North America exceeded 2019 levels by over 7% in 2020, according to Container Trade Statistics. A decline in volumes on the Asia-Europe route by about 5% in 2020 indicates a growth potential in 2021 as demand recovers.
Container box shortages and port congestions due to pandemic-related operational disruptions have extended container ships’ turnaround times, further increasing freight rates.
Moreover, a usually quiet period during the Chinese New Year could have eased some congestion, but demand remained strong as China maintained its production levels.
The ongoing virus outbreaks in many regions and mobility restrictions are likely to keep freight rates abnormally high in the short term, said Fitch.
“These higher-than-usual spot rates will translate into higher contract freight rates in the ongoing spring contracting season. However, we view rate volatility as an inherent sector risk and we expect rates to reduce once supply disruptions related to the pandemic are addressed,” concluded the agency.
