Which way will container freight rates go? Carriers at crossroads, says Drewry

Monday, March 14, 2011

New Drewry special report examines drivers of container freight rates, provides five year forecasts of major east-west trades and offers suggestions for carriers and shippers on how to smooth pricing volatility.

London, UK, 14th March 2011 – Container freight rates go up and then they go down - that’s just the way things are. This almost pathological acceptance that things cannot and will not change is a symptom of a deficiency within container shipping’s DNA that prevents it from being able to break the boom and bust.

What makes freight rates tick, why investors consider the industry a risky bet and why predicting carrier profitability from one year to the next is almost impossible, are all carefully analysed in Unmasking Freight Rates, a new special report from Drewry Maritime Research.

The in-depth report contains expert analysis from Drewry’s experienced team of container shipping professionals on a wide range of issues that have contributed to the pricing volatility of the industry. Some of the major topics covered in the report include:

•Supply/demand’s influence on rates;
•The influence of the orderbook;
•New rate hedging possibilities;
•Shipper-carrier relations;
•Carrier profitability and mind-set.

“We believe that this is the most comprehensive analysis of liner freight rates and industry characteristics available to the market,” said co-author Simon Heaney. “We hope that it will be considered essential reading for all shipper and carrier managers who want to know their likely costs over the next few years. It should also interest the banks and shareholders that have funded the industry’s rapid expansion.”

Drawing upon Drewry’s extensive archive of freight rates, the report provides a unique five-year forecast for each of the major east-west trade lanes.

The forecasts are based on three possible scenarios that take into account future economies of scale, market sentiment, and potential capacity management tactics of carriers, in particular carriers’ potential to cascade ships to/from the east-west trades alongside deliveries of newbuilds into the market.

“The intention of adding these varying scenarios was not so that we could hedge our bets, but merely to illustrate that carriers are currently at a crossroad where they seem to be wavering from the tactics that served them so well in 2010 and are showing signs of returning to the old habits that almost bankrupted some of them,” said Neil Dekker, co-author of the report.

“The strategy that carriers decide upon now will have big implications for carrier profits, and in turn shippers’ costs, over the next few years,” he added.

A key takeaway from the forecasts is that Asia-Europe headhaul rates will see a steep decline in 2011, almost irrespective of how carriers behave.

The rate forecasts give Drewry’s outlook for prices excluding BAF and with the fuel cost added. Drewry anticipates fuel costs will increase, especially considering recent events in the Middle East/North Africa that have pushed already rising oil prices even further skywards.

“The inevitable higher fuel costs that carriers will incur should strengthen their resolve to claw back some of those extra costs from shippers in the form of higher bunker surcharges or floating BAF mechanisms, something they have not always done successfully because of their inclination towards all-in rates. That means that shippers will probably lose some of the savings they made from lower rates,” said Philip Damas, co-author and director of Drewry Supply Chains Advisors.

Maersk’s very recent order for 10 x 18,000 teu giants placed with Daewoo Shipbuilding has once again changed the competitive landscape. The carrier may now be able to lure the biggest global shippers with its industry-leading green credentials, but will this be the catalyst for another round of orders which will only add further to the over-supply scenario that we highlight? It could easily be another driver which forces the industry back into market share-chasing mode in the years to come, adding to volatility.

With these very latest industry developments in mind, as well as diagnosing container shipping’s inherent volatility, Unmasking Freight Rates also offers guidance on steps that all industry stakeholders can take to move towards the nirvana of pricing stability, including advice on how to make service contracts more mutually beneficial.

Source: Drewry House

Maritime Today

The Maritime Industry's original and most viewed E-News Service

Maritime Reporter November 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Euroseas Sells C/V Marinos

Euroseas Ltd.  an owner and operator of drybulk and container carrier vessels and provider of seaborne transportation for drybulk and containerized cargoes,

Bill on Danish Maritime Planning Submitted

The bill is to form the basis of a maritime planning act intended to promote economic growth and development of sea areas. The Danish Maritime Authority is to head the work.

Plans to Create Rio Doce Fund

Vale and BHP Billiton announced today plans to work together, with Samarco, to establish a voluntary, non-profit fund to support the rescue and recuperation of the Rio Doce river system,

Container Ships

Euroseas Sells C/V Marinos

Euroseas Ltd.  an owner and operator of drybulk and container carrier vessels and provider of seaborne transportation for drybulk and containerized cargoes,

Groundbreaking Ceremony for Seaspan's Vancouver Office

Seaspan hosted a groundbreaking ceremony today to announce it has officially started construction on a new head office in North Vancouver. The 7,800 square metre (84,

SSA Welcomes Decision To Extend BEO

The Singapore Shipping Association (SSA) has welcomed the decision by Singapore’s Minister for Trade and Industry to extend the Competition (Block Exemption

Maritime Careers / Shipboard Positions Maritime Security Maritime Standards Naval Architecture Navigation Pipelines Pod Propulsion Port Authority Salvage Sonar
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.0925 sec (11 req/sec)