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Exhibit A combines Drewry’s freight rate data from spot markets on key East-West and North-South trades. Both indices are part of our monthly Container Freight Rate Insight, which regularly tracks spot markets on over 700 port pairs globally.
After the debilitating rate wars of 2016, Drewry’s East-West spot rate index started 1Q17 on a high, dropped 9 points during the Q2 low season, then inched up 3 points over the summer peak season, and fell back to 87 over the winter lull in Q4. The index started 2018 10 points below the level of 2017.
On North-South trades on the other hand, 2017 saw freight rates increase each quarter. In Q2, the uptick was modest, but in Q3 rates shot up 11 points, as strong demand and tight capacity management resulted in multi-year-record freight rates on the trades from Asia to Africa and South America.
Spot rates drive contract rates, and the above analysis demonstrates that if shipping lines manage to align supply to demand, they can increase freight rates. Drewry thinks that this balancing exercise has become much easier with a reduced number of shipping lines. Yet the recent wave of vessel upscaling will cause capacity to increase well into April, while volumes have fallen off, post-Chinese New Year. This combination makes it the worst possible timing for shipping lines to negotiate their annual transpacific contracts.

Exhibit B shows the Drewry Benchmarking Club East-West Contract Rate Index, compiled from the Drewry Benchmarking Club where BCOs can confidentially benchmark their contract rates with peers. During 2017, the index showed large increases of 7 points in Q1, caused by the Asia-Europe contracts, and 9 points in Q2, caused by the transpacific contracts. But for 2018, the Asia-Europe contracts pushed up the index by only 2 points. This confirms Drewry’s expectation that in view of the falling spot rates, increases in contract rates will be harder to obtain in 2018. Consequently 2018 transpacific contracts will see flat or even reduced transpacific contract rates. A strengthening supply-demand balance during the second half of the year will support rising spot rates later during the year, potentially paving the way for increased contract rates for the 2019 season, but for 2018 it seems that shippers have the upper hand.