Spot Rates: Oceans Apart

Spot Rates: Oceans Apart

A two-month-long decline in spot freight rates on major east-west containerized trade lanes extended into this month amid softening demand.

But in another indication that supply and demand rule the day, rates in the trans-Atlantic, where capacity has been relatively stable, and in intra-Asia trade, where demand doesn’t slack off until Chinese New Year, climbed in September over the previous few months.

The Drewry Container Rate Benchmark, measuring the spot rate between Hong Kong and Los Angeles fell 5 percent to $2,179 per 40-foot equivalent unit in the week ending Nov. 8, leaving the pricing measure down 23 percent from the year’s high point of $2,824 per FEU set in the week ending Aug. 9.

The Drewry benchmark rate was still 66.2 percent higher than the comparable week last year, in the midst of a post-recession upswing that started after rates bottomed out in the summer.

By The Numbers: Container Rate Benchmark.

One symptom of the three-month decline in trans-Pacific rates was that APL’s average revenue per container declined 2.8 percent in October from September, reaching its lowest point since June, as demand leveled off at the end of the peak container shipping season. The carrier’s average revenue per FEU was $2,916 in the four weeks ending Oct. 15. That was 29 percent better than a year earlier despite the second straight month-to-month decline.

On Asia-Europe lanes, rates measured by the Shanghai Containerized Freight Index dropped to $1,277 in the week ending Nov. 5, the 16th consecutive week of decline. In fact, of the 15 trade lanes that make up the New Shanghai Container Freight Index, the only one to increase is between Shanghai and the Middle East, which rose for the second straight week to $851 per FEU from $832 as air cargo capacity tightened in the wake of the Oct. 29 terror scare.

Although rates fell in all other lanes, analysts at the Shanghai Shipping Exchange said the rate of decline slowed, owing to the ending of the weeklong Chinese National Day holiday and the resumption of production and, therefore, exports.

“Asia-Europe rates, like the trans-Pacific, have been falling following the earlier peak demand,” said Philip Damas, division director of Drewry Supply Chain Advisors in London. “The Asia-to-Europe and Asia-to-U.S. trades are very much the poor relatives of global container shipping.”

He said some carriers already have started withdrawing capacity from both trade lanes for the slack winter season, so that may stop or stem the decline in rates.

Trans-Atlantic rates have bucked the trend in sliding freight rates “because carriers have not added back the capacity they withdrew last year and earlier this year,” Damas said. The rates, including all surcharges, reached $2,830 per FEU in September, up 9 percent from $2,590 in July. “It’s gone up because there have been capacity shortages. Trade has increased ahead of capacity increases,” Damas said.

“We don’t really see a slack season on the trans-Atlantic, because it’s fairly stable, said Soren Castbak, Maersk Line’s senior director of network and product for trans-Atlantic service.

He said demand has improved from the bottom of the recession last year but has not returned to pre-recession levels. “Basic commodities that people have to buy have recovered to stable levels, though we don’t see any growth in demand,” Castbak said.

By The Numbers: New Shanghai Containerized Freight Index.

Although westbound trans-Atlantic demand is stronger than eastbound, the market hasn’t been able to support all of the freight rate increases carriers have sought this year. Maersk, for example, didn’t get the full increase it sought this year, and the rate increase it sought on Oct. 1 was more successful eastbound than westbound, Castbak said.

Like it did last year, the Danish carrier already has notified customers of the three trans-Atlantic increases it will seek next year, Castbak said. It is “pre-planning” an increase of $300 per container, whether 20 or 40 foot, on April 1; $300 per container on July 1; and another increase on Oct. 1 that will be determined by market conditions. Castbak said Maersk would seek the increases to cover the costs of repositioning containers left stranded on the North American side of the Atlantic by the trade imbalance.

In other lane, the spot rate on the key north-south trade lane from China to Brazil also is trending down. Between July and September, the Drewry benchmark rate for shipping cargo from China to Brazil was down 7 percent to $4,350 per FEU.

One lane still showing strong growth in demand and freight rates is the intra-Asia trade. “The growth rates in Asia are still very robust, and there have not been many new services,” Damas said.

Contact Peter T. Leach at pleach@joc.com.