Shipping’s Price War: Spot Rates Slide as Carriers Battle for Cargo

By Gavin van Marle (The Loadstar) –

Container spot freight rates on the major east-west liner trades experienced another week of decline, as slack demand continued to depress pricing.

The Drewry’s World Container Index’s (WCI) composite global rate showed a week-on-week decline of 10%, to $2,795 per 40ft, dragging overall rates down to a level last seen in April last year, shortly before an early peak season on the Asia-Europe trades led to an upsurge in spot rates.

It is still way too early in the year to determine whether we will see a repeat – current demand levels appear depressed, but the sentiment at the same point last year was very similar.

Nonetheless, it was a bad week for transpacific carriers, which saw spot rates to both the US east and east coasts decline by double-digit amounts and, for the first time in months, steeper falls than on Asia-Europe routes.

The WCI’s reading for its Shanghai-Los Angeles saw a week-on-week decline of 11%, to $3,888 per 40ft, while its Shanghai-New York leg fell 13%, to $5,126 per 40ft, with one source in China suggesting carriers are increasingly competing for cargo on the routes, leading to the spot rate price-cutting.

“Factory production in some regions has yet to fully recover [from Chinese New Year], resulting in limited shipping volumes. Box liners continue to lower freight rates to attract cargo,” they said.

Meanwhile, the WCI rate on its Shanghai-Rotterdam route fell 9% week on week, to $2,618 per 40ft, while the Shanghai-Genoa declined 8%, to $3,837 per 40ft container.

The WCI spot rate on the headhaul Rotterdam-New York leg also fell week on week, by 3%, to $2,394 per 40ft.

Commenting on the Asia-Europe trade, sources in Ningbo earlier in the week said: “Overall market transportation demand is recovering slowly, with insufficient cargo volumes to maintain high load rates, leading to continued declines in freight rates.”

In response, carriers are lining up a series of general rate increases (GRIs) from the beginning of March to try and reverse the depressed pricing trend that is now several months long.

This week, Hapag-Lloyd announced a new freight all kinds (FAK) rate from 1 March, of $4,100 per 40ft, for Asia-North Europe shipments and $5,300 per 40ft for Mediterranean destinations. Similarly, MSC announced a new FAK rate of $5,200 per 40ft on Asia-West Mediterranean shipments, also for 1 March.

However, Drewry warned that carriers would probably need accompany the hikes with further reductions in capacity, in order to balance supply with demand. Otherwise, rates are expected to continue to drop.

“As we approach March, the surge in capacity is expected to put further pressure on shipping rates, diminishing the likelihood of success for the speculative general rate increases announced by carriers from 1 March,” the analyst noted today in its Blank Sailings Tracker.

What also remains to be seen is what the actual proforma capacity available to shippers on the Asia-Europe trades will be once the alliance reshuffle is complete, as there was evidence this week that, once new vessel-sharing agreements are bedded in, capacity on Asia-North Europe could be down year on year by as much as 11%.

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