Slim pickings so far for box freight rates

Between the trade war and slowing demand, carriers have struggled to keep volumes and rates up. The approaching peak season may offer little respite.

News ID: 80402

Date: 30 June 2019 - 10:16

Mainlane trades are struggling to increase rates despite blanked sailings, while seasonal demand is expected to be lower than usual.

THE second quarter of the year has proved to be an underwhelming one in terms of container freight rates, with the trade dispute between the US and China cutting into carrier profit margins.

Hopes that the peak season will drive demand, and with it rates, should also be tempered, according to analysts at Platts.

“The rising demand for Southeast Asian bookings has been a dominant driver in the transpacific container market over the course of recent weeks, taking significant market share from the north Asian market following the erection of trade tariffs and this is expected to continue going forward,” it said.

But it added that while Southeast Asian volumes were taking a greater share of the transpacific market, there had still been a significant fall in volumes, although demand for imports was expected to grow in line with GDP this year.

“With summer peak demand season just around the corner, there could be a bit of support for these routes, and while this is not expected to boost the market significantly, it should at least give a helping hand to current very low rates,” Platts said.

The one saving grace for the transpacific market this year could come in the form of scrubber installations, it added.

“Taking operational vessels offline for several weeks as they retrofit ahead of the International Maritime Organization 2020 regulations, could limit capacity and tip the scales toward excess demand and therefore stronger rates.”

Elsewhere, Asia-Europe and Asia-Mediterranean rates had seen some strengthening in the past month after starting the quarter slowly.

But utilisation remained in the low 90% range, despite a series of blankings designed to prevent a fall in rates on the main head-haul routes.

For the second half of the year, the rapid approach of IMO 2020 would take an increasing share of market focus, the analyst said.

“As carriers move from high-sulphur fuel towards low-sulphur fuel, there will be multiple factors with which they will have to contend in their bunker adjustment factor mechanisms, not just related to the change in fuel but also to tackle the increasing adoption of scrubbers in the market,” Platts said.

But shippers were voicing concern about the “diversity and confusion” in the market regarding bafs and the lack of transparency affecting the all-inclusive rates.

“With negotiations between container shippers and carriers for freight underway once more as we reach the end of the second quarter of the year, there is an increasing air of uncertainty surrounding the market,” Platts said.

“This has seen some shippers move away from current baf offerings by carriers towards the adoption of an index-linked approach, which has the benefit of adding increased clarity and simplicity in the market.”