BIMCO: U.S. trades were ‘main driver’ of container rate declines in 2016

While the Shanghai Containerized Freight Index showed spot rates averaged 7 percent less in 2016 compared to a year prior, the China Containerized Freight Index illustrated an even greater drop, with declines especially prominant to the United States.    An analysis of the spot container shipping freight rates from China, as published each week by the Shanghai Shipping Exchange’s widely followed Shanghai Containerized Freight Index (SCFI), shows spot rates averaged $581.69 per TEU in 2016, a 7 percent decline from 2015.
   The Baltic and International Maritime Council (BIMCO), which published the analysis, said a decline in rates to the U.S. was the “main driver” for the lower average rate, which is a weighted average of spot rate estimates from Shanghai to 15 destinations or port ranges around the world.    While spot rates from Shanghai to Europe surged 11 percent year-over-year in 2016 to average $687.17 per TEU, the average rates on routes to the U.S. were down last year.
   In 2016, the SCFI’s average rate to the U.S. West Coast totaled $1,266.39 per FEU, while the average rate to the U.S. East Coast reached $2,089.30 per FEU, year-over-year declines of 15 percent and 33 percent, respectively.
   In addition, the revenue that many large carriers earned on each container last year may be even lower.
   The more comprehensive China Containerized Freight Index (CCFI) – another major index produced by the exchange – showed an even greater drop.
   BIMCO Chief Shipping Analyst Peter Sand said on average, the CCFI was 19 percent lower in 2016 from a year prior, compared to just a 7 percent drop in the SCFI.
   From China to the U.S. West Coast, the CCFI fell 25 percent year-over-year in 2016, while from China to the U.S. East Coast, the index fell 28 percent.
   On trade from China to Europe, the CCFI showed a 19 percent drop in contrast to the 11 percent improvement shown by the SCFI.
   The CCFI is less publicized than the SCFI, but Sand said it may be a better indicator as to what will actually happen to container carrier revenue.
   The CCFI includes both spot and long-term rates, while the SCFI focuses on spot prices. In addition, the CCFI is broader, based on rates from 10 major ports in China to 14 destinations around the world.  
   Sand said that even though the average container freight rates indicated by the indexes are lower for 2016 than 2015, “2016 might stand out for something positive, where the container shipping lines took some of the measures needed to adapt to the new normal, where the growth in demand is equal to the GDP.”
   For many years, analysts of the container shipping industry have noted that growth in container traffic has outstripped growth in global GDP. That multiplier appears to be disappearing and container traffic is growing at a similar rate to the world economy.
   Sand said, “Container shipping lines achieved a lower growth rate in supply higher than the demand growth for the first time since 2010, by using the tools they had at hand and consolidated, scrapped and postponed deliveries.
   “If the trade-to-GDP multiplier stays at the current level and the International Monetary Fund is correct with their projection, the container shipping industry will be status quo in 2017 and the freight rates will most likely stay at the same level as last half of 2016,” he said. “However, the container shipping lines will increasingly focus on reaping the benefits of consolidation and we will most certainly see their profits go up.”
   Sand offered a caution about the intra-Asia trades, saying the SCFI showed “container shipping lines operating trade routes from Shanghai to South Korea, Taiwan, Hong Kong and Singapore all achieved a lower average rate for 2016 compared to 2015.”
   He said those four trades did not experience similar increases in freight rates as the main trades did during the second half of 2016 and remained on par with the poor first half 2016 level.