Goods Go Deep As Ocean Rebounds

Original Post Source

     Ocean container shipping fundamentals are quickly regaining balance, helping boost freight rates on either side of the new year, heralding improved returns for shipping lines and higher prices for shippers in 2017.

Dumps The Slumps

      The traditional holiday season before and after New Year is usually characterized by a slump in ocean container shipping freight rates as demand from key markets dims after the build-up of retailer inventories before the festivities. Not this year, though.
      After a mostly awful 2016 for shipping line earnings, instead of slumping at the turn of the year, spot freight rates surged. The Shanghai Containerized Freight Index (SCFI) published on December 30 saw a 15.5 percent week-on-week gain. Rates from Shanghai to Mediterranean ports were up 12.8 percent to $1,086 per teu, while Shanghai prices to North European ports increased 11.3 percent, to $1,168 per teu.
      The market average price for 40’ containers on the world’s number one trade route—Far East Asia to North American main ports—also saw major gains: from a low of $1,164 in April to $1,716 USD by the close of 2016 according to Xeneta, a benchmarking and market intelligence platform for containerized ocean freight.


Read The Index

      The Shanghai Containerized Freight Index reported a marginal drop on routes from Shanghai to Europe on January 6, but U.S. spot rates to the East and West coasts again increased.
      The turn of year gains prompted Drewry to proclaim that Asia-North Europe shippers were now braced for spot and contract price hikes this year as European demand recovered from its lengthy recession. “Buoyed by the traditional pre-Chinese New Year demand surge, which this year starts on January 28, spot rates have surged in recent weeks with last week’s Shanghai to Rotterdam benchmark from the World Container Index setting a new 20-month high of $2,210 per 40-foot container,” the analyst said on January 8. “This represents a significant 80 percent premium on the same rate just 14 weeks ago at the start of October.

Asian Europe Uptick

      “The uptick in the Asia-Europe spot market comes at a perfect time for carriers currently engaged in contract negotiations with shippers and, while some of the steam will go out after CNY, BCO [Beneficial Cargo Owner] rates will definitely be higher than they were this time last year.”
      The jury is still out as to whether the carriers can sustain rates gains through the slack period following CNY, not least because of the 1.7m teu of new capacity due for delivery this year. However, if vessel scrapping continues apace—some 700,000 teu was cut from the global fleet in 2016—pressure will be eased.

Bimco Records Improvement

Peter Sand      According to shipping organization Bimco, the demand picture for liner shipping is also much improved for 2017, although growth remains slow. “In terms of more containerized goods being transported on the sea, BIMCO expects U.S. imports to grow only slowly, as economic growth begins to weaken,” chief shipping analyst Peter Sand told FlyingTypers. “European imports will grow slightly faster, as consumer demand is still on the rise. On the non-long hauls we expect imports from the Far East into Middle East to become one of the brighter spots, alongside the ever-rising intra-Asian trades.”
      BIMCO expects the container shipping segment to see net fleet growth of around 3.1 percent in 2017, up from an estimated 1.1 percent last year.  “The risk for container shipping lines is on the supply side; this must still be handled with care,” said Sand. “An unchanged fundamental situation only takes the nominal net inflow of new tonnage into account. If speed is increased and/or idle capacity is brought down, renewed pressure on freight rates will immediately follow.

Better Is Better

      “Towards the end of the year and come 2018, the benefits of the mergers seen in 2016 should become visible—hopefully in the form of better profits and fleet utilization, rather than just lower costs and cheaper offers to shippers.
      “The recovery is slowly coming, only if patience is applied and supply side handled with care for years to come.”
Sky King

Leave a Reply

Your email address will not be published. Required fields are marked *