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“Sick trades” continue for container carriers

LONDON: July 06, 2016. Shipping consulting company Drewry says container freight rates will rise over the next 18 months but will not be enough to rescue the industry from substantial losses in 2016.

In a new report it notes parallels between what is happening now and the 2008/09 global financial crisis as spot freight rate volatility reaches new levels while industry income falls to record lows.

APM AArhusDrewry estimates container lines have “signed away” US$10 billion in revenue in this year’s contract rate negotiations on the two main East-West trades. With trans-Pacific contract rates as low as US$800 per 40ft box to the US West Coast and US$1,800 per 40ft to the US East Coast, it said carriers “have done exactly what they did back in May 2009 in a desperate attempt to retain market share”.

With first quarter load factors at around 90 percent Drewry added there was no reason for carriers to leave so much potential revenue on the table.

“For 2017, Drewry anticipates a slightly brighter picture with global freight rates forecast to improve by about 8.0 percent,” declared Neil Dekker, Drewry’s director of container research. “Carriers are expected to take some action to address overcapacity as cash flow attrition becomes more urgent and BCO (beneficial cargo owner) rates rise from this year’s lows. But once again, this cannot be seen as a genuine recovery since these so-called improvements must be set in context against the unnecessarily big rate declines seen in both 2015 and 2016," he continued.

Drewry noted the recent decision by the G6 to take a weekly loop out of the Asia-North Europe trade as a positive move but said similar measures would be necessary “across other sick trades” if recent improvements are to gain momentum.

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