Container freight rates continued their precipitous decline last week, with composite pricing on the eight major east-west routes measured by Drewry’s World Container Index down another 2 percent to $1,192 per FEU compared with the previous week.
The latest reading of the composite WCI was also 18 percent below the same time period last year, when freight rates had already began to climb back out of their post-Lunar New Year doldrums.
Last year also represented a marked turnaround from 2016 rates, which reached near-historic lows as carriers scrambled to fill ships, often at prices that did not even cover operating costs. Those rock-bottom rates resulted in a disastrous year for carrier profitability, as the industry lost a combined $5 billion and several major carriers were consolidated via mergers and acquisitions or, in the case of Hanjin Shipping, went bankrupt and exited the industry entirely.
Drewry further noted that at $1,387 per FEU, the average composite WCI through the first portion of the 2017 calendar year is down $74 per FEU (5.1 percent) from the five-year average for the index of $1,461 per FEU.
On an individual trade lane level, pricing from Shanghai to Rotterdam fell only 1 percent from the previous week to $1,189 per FEU but were down 23 percent on a year-over-year basis.
Eastbound transpacific rates from Shanghai to Los Angeles similarly slipped 4 percent from the previous week and 17 percent from the same 2017 period for $1,180 per FEU, while pricing from Shanghai to New York showed the only week-over-week increase of the various routes tracked by the WCI, rising 1 percent to $2,370 per FEU, which was still a 3 percent.
Rates in the transatlantic trade, however, continued to buck the negative year-over-year trend. Despite dropping 7 percent to $1,864 per FEU compared with the week before, rates from Rotterdam to New York were still 3 percent higher than in the same time frame the previous year.
London-based Drewry said it expects rates to “increase slightly” this week thanks to proposed carrier GRIs set to take effect April 15, but according to a recent report from The Loadstar, third-largest carrier CMA CGM has announced a significant reduction in Asia-Europe rates that could cause other carriers to similarly cut pricing in order to compete.
“Next month, the French carrier will charge $850 per 20ft and $1,600 per 40ft from $900 and $1,700, and other carriers are expected to follow as they scramble to fill ships,” the report said. “With demand remaining weak post-Chinese new year, several forwarders have told The Loadstar they have been offered rate discounts in the past two weeks to switch carrier.”
And on the supply side, this downward trend in spot rates could be further compounded by the introduction of additional capacity during the first quarter of 2018.
According to the latest quarterly World Liner Supply Report from ocean carrier capacity analyst BlueWater Reporting, overall weekly deployed capacity in the westbound Asia-Europe trade jumped 9 percent year-over-year to 237,820 TEUs at the end of Q1 2018.
Capacity in the eastbound transpacific trade ticked up just 0.9 percent to 409,992 TEUs for the quarter, but the largest year-over-year gains were seen in the westbound transatlantic, where capacity surged 21 percent to 82,912 TEUs.
Although international trade demand is increasing at a relatively steady rate thanks to a strengthening global economy and rising consumer spending, carriers will continue to have a hard time keeping rates at a reasonable—i.e. profitable—level if they continue to introduce capacity faster than they can fill their ships.
Just last week, for example, South Korean carrier Hyundai Merchant Marine confirmed an order for 20 new containerships, 12 with more than 20,000 TEUs of capacity and eight 14,000-TEU vessels, all part of the company’s plan to grow its fleet to a carrying capacity of more than 1 million TEUs.
HMM said the massive newbuild order would allow the carrier to take advantage of increased economies of scale, as well as to meet looming environmental regulations set to come into effect in 2020.
Regardless of the reasoning, however, pumping another 350,000+ TEUs into an already saturated market will only serve to perpetuate, and possibly even exacerbate, the imbalance of supply and demand that landed the carriers in such hot water in the first place.