A key Asia-Europe freight index has soared 114 percent in the past week, boosting carriers’ hopes steep rate hikes introduced Thursday will stick even as cargo growth slows on the world’s biggest trade lane.
The rate to ship a 40-foot container from Shanghai to Rotterdam rose to $2,732 Thursday from $1,276 on Feb. 23, according to the World Container Index.
“This is the first real indication of true market rates,” on the day carriers hike rates as the WCI is based on reports of actual agreed freight assessments, said Steven Phillips, a container freight derivatives broker at Freight Investor Services in London.
The WCI, a joint venture between Drewry, a London shipping consultancy, and Cleartrade Exchange, is closely watched by carriers and shippers as a barometer of the market response to freight rate movements.
All major carriers have increased westbound rates by $700 to $800 per 20-foot container on the westbound leg and are some have followed market leader Maersk Line’s decision to apply a second increase of $400/TEU on April 1.
Analysts say carriers success in making the higher rates stick depends on their ability to maintain discipline over capacity in the next few months. While carriers have removed around 14 percent of capacity since last June, they are likely to restore much of the withdrawn capacity by the summer, according container market analyst Alphaliner.
“We will need to see whether these rate increases will stay or erode over time,” said Philip Damas, director at Drewry stated. “Our view is that there will be a reduction of spot rates next week, but container shipping lines have withdrawn enough capacity from the Asia-Europe trade to support some net rate increases over a fair period of time,” Damas said.
Ben Hackett, founder of Hackett Associates and co-publisher with the National Retail Federation of the Global Port Tracker, said the decision by Maersk, the world’s largest container carrier, to pull capacity from the Asia-Europe trade was an important factor in this week’s large rate increase.
However, other lines, either individually or through vessel-sharing arrangements, must also withhold capacity if the rate increases in the Asia-Europe trade lane are going to stick, Hackett said.
He is more optimistic about prospects for a rate increase in the trans-Pacific trade. Carriers represented by the Transpacific Stabilization Agreement last month announced their intention to implement a GRI of $300 per-FEU effective March 15. The March increase would be followed by another GRI around May 1 when many of the new 2010-13 contracts in the trans-Pacific will take effect.
Hackett said the trans-Pacific is a “better choice” because there is less capacity to deal with in that corridor.