Carrier Competition for Market Share Could Start a New Freight Rate War

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By Mike Wackett (The Loadstar) – With the first anniversary of the Hanjin Shipping bankruptcy just passed, there are growing fears that ocean carriers are sliding towards a new freight rate war.

There is a “clear sign that rate cutting is starting to take hold once again,” said Alphaliner.

“The rate truce carriers have largely abided by since Hanjin’s sudden exit now appears to be crumbling.

The consultant added that the discounting of rates just before the Chinese Golden Week holidays early next month pointed to “further rate instability as carriers continue to jostle for market share”.

Alphaliner noted that the Shanghai Containerized Freight Index (SCFI) had recorded six consecutive weekly falls, despite what seems to be strong peak season demand this year.

Carriers have been unable to impose higher FAK rates or GRIs on the major trades and The Loadstar has, for example, seen pre-advice of new FAK rates from Asia to North Europe set below current levels.

As a result, the trickledown impact on the SCFI since July leaves the headline index 16% lower overall.

Alphaliner calculates that spot rates from Asia to North Europe have declined by 15.7% during this period and by 14.2% to Mediterranean ports.

On the transpacific, there has also been significant erosion with spot rates to the US west coast down by 12.7%, while for the east coast the decline is 16.9%.

Moreover, with the exception of the Asia to Australasia trade, spot rates have fallen on all other routes since July – Alphaliner calculates a slump of 33.1% and 43.5% in the SCFI for South America and West Africa respectively.

Confirmation of the widespread erosion of rates came from Neil Dekker, director of container research at Drewry Shipping Consultants.

On the sidelines of a London International Shipping Weeknconference at the IMO headquarters last night, Mr Dekker told The Loadstar he was receiving many reports of “widespread rate cutting” by carriers across several trades.

He suggested this pointed to a new liner trade rate war at the worst possible time: start of the slack season and just prior to the launch of annual contract negotiations on the Asia-Europe trades.

The immediate aftermath of the Hanjin crash saw spot rates soar and provide a sound base for carriers to negotiate much higher contract rates from Asia to Europe as well as Asia to the US.

Concerns over “a second Hanjin” and a rush of M&A activity prompted shippers to sign up for longer periods, and carriers have so far this year enjoyed a higher ratio of contract business than in the past few years.

The result for the industry is a projected cumulative $5bn profit this year, according to recent Drewry estimates, reversing a deficit of a similar amount in 2016.

Notwithstanding the obvious preference for container lines to carry higher-revenue contract containers, the spot market continues to act as a bellwether for the liner industry and carriers will not welcome the continuing erosion of spot rates before they sit down with shippers for new contract talks.

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