port of los angeles and long beach

Shipping containers are unloaded from ships at a container terminal at the Port of Long Beach-Port of Los Angeles complex, amid the coronavirus disease (COVID-19) pandemic, in Los Angeles, California, U.S., April 7, 2021. REUTERS/Lucy Nicholson

Fitch Says Shipping Rates Rally Has Peaked

Mike Schuler
Total Views: 1667
April 19, 2021

Global freight rates will remain high in the short term, but will moderate in the longer term once shipping supply-chain disruptions are cleared and more new ships are deployed, Fitch Ratings says.

Fitch says demand for container shipping is high due to the mismatch between increased pandemic-induced trade and operational disruptions to the shipping supply chain, such as container box shortages and port congestions.

The ratings agency says it expects seaborne trade and associated freight rates to remain strong for a while, but believes the current spot shipping rates are “unsustainable” and expected fall once disruptions from port congestions and the container shortage are resolved. It also notes that the Suez Canal blockage added to market’s tightness, but was not long-lived enough for shippers to meaningfully consider alternative routes.

“We believe that the shipping rates rally has peaked, having roughly quadrupled yoy on the Asia-Europe route and doubled on the Asia-North America route. We anticipate unchanged spot rates in 2Q21 due to a strong economic recovery and expect them to only start to gradually normalise from 2H21. Still, 2021 full-year results of container shipping companies are likely to be strong as high spot rates will flow through to contracted rates, while most investments in new vessels will be due after 2021.”

Fitch says its view of the long-term unsustainability is supported by a rapidly growing containership order book, but says the added capacity is unlikely to lead to significant overcapacity like it did in 2008-2009 market crash. It also noted the two to three year lag time between order and delivery.

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