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Lower freight rates might be bad for carriers and customers alike

Aug 06, 2013
Average global freight rates fell to a 15-month low in April, according to Drewry’s new online Container Freight Rate Insight. How long before the good times come to an end and cargo owners have to pay more to move their cargo? And while the rates remain low, is it necessarily good news for shippers?

 

Drewry’s Global Freight Rate Index fell 12% in April to reach its lowest level since February 2012, when container shipping was still recovering from the last ocean carrier price war. The Index, which is a weighted average of freight rates across the 

600 trade routes covered, excluding intra-Asia, reached a new low of $2,065 per 40ft and has fallen 18% since the start of the year. 

 

Pricing is now below last year’s levels on over one third of trade routes and has fallen steadily on the Asia-Europe trade since the GRI of mid-March. Last week the World Container Index benchmark from Shanghai to Rotterdam fell below $1,400 per

40ft for the first time since February 2012, shedding as much as 13% to $1,335 per 40ft.  Meanwhile, eastbound transpacific pricing has retreated since the 1 April GRI, with Drewry’s benchmark rate between Hong Kong and Los Angeles falling below $2,000 per 40ft for the first time since March 2012 to $1,884 per 40ft. Until shipping lines take the necessary action to correct capacity, freight rates will remain under pressure.

Drewry believes that carriers will need to remove at least two service strings from the Asia-Europe trade for rates to recover. Meanwhile the reduction in prices might not be the good news customers might expect.  Simon Heaney, Research Manager at Drewry, said that carriers will be forced to curb their losses somehow. “Service quality might be forsaken as some operators might ask what benefit they get from offering reliable port-to-port services,” he said. “We expect the first step to be further slowing down on ship speeds, which in itself should not lessen reliability but will lengthen transit times even more. After that, if they are still losing cash, the incentive to offer reliable services will be sorely tested.”

Image: Ships set to slow down even more as freight rates remain under pressure

 

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