Container rates start to soften

Container rates start to soften    Ocean container rates on the transpacific trade lane have begun to fall after rising steadily for months to a five-year-average high of $2,980 in July, according to Drewry Shipping Consultants and other transportation experts.
   Rates stayed higher than expected through mid-summer as shipping demand remained strong, but the addition of new capacity to container fleets on the Asia/U.S., Asia/Europe and other routes is expected to lead to further rate declines in the third and fourth quarter, Drewry said in its bi-monthly container market report in early September. Rates are already falling in the Asia/Middle East, Asia/South America and Asia/Africa lanes as well as the transpacific.
   Drewry's Global Freight Rate Index for the year is almost $1,000 more than the $1,800-per-TEU average through July 2009, as carriers used scarce capacity to their advantage and push contract customers to spot rates.
   Drewry, which provides ocean procurement, cost benchmarking, and contract negotiation service to shippers, as well as advice to port operators and investors, said it measured a 19 percent increase in transpacific capacity from April to July.
   The capacity increase is the result of 1.15 million TEUs of new tonnage and 1.28 million TEUs of idle tonnage that carriers have added to their fleets this year, according to the latest weekly newsletter of Paris-based information and consulting service Alphaliner.
   For the full year, the firm predicts container capacity from new construction will increase 9.5 percent and 22 percent overall when ships returned to service are counted. It, too, predicts slower demand growth in the second half of this year and in 2011, tipping the market back into a period of oversupply.
   'Carriers are reporting falling utilization levels as the impact of recent capacity introductions and a weaker than expected peak season are beginning to affect load factors,' Alphaliner said. Lower demand for vessel space on long-haul routes is having a spillover effect on shorter ocean legs, such as within Asia, it added.
   The Shanghai Containerized Freight Index, published by the Shanghai Shipping Exchange, also reflects the recent decline in full container rates. Last Friday, it recorded its largest weekly fall since its debut almost one year ago, down 37 points to 1,413. Spot rates for containers from Shanghai to the U.S. West Coast were down $68 to $2,567 per TEU for the week of Sept. 10 compared to the previous week. Shippers on average paid $36 less per TEU, or $4,027, to reach the U.S. East Coast. Rates to Europe, the Mediterranean, Dubai, West Africa, South America and other destinations were off by similar amounts. Rates to Australia have recovered during the past two weeks after falling by more than 50 percent since January.
   The index has steadily fallen since the beginning of July, when it reached a high of 1,583 points and has shed 10.65 percent of its value in the past two months.
   Meanwhile, freight rates on the westbound Asia/Europe lane have stabilized or slightly reversed as vessel space became easier for shippers to find and carriers delayed or substantially reduced peak season surcharges announced in June, according to the research firms.
   The fact that shippers are not as willing to accept the surcharges is a sign of market softening, analysts say.
   'Ships are not leaving at full capacity. Carriers are not rolling containers as they were as recently as two months ago,' said Paul Svindland, managing director of the transportation and logistics practice at management consulting firm Alix Partners, in an interview.
   The rate decline is a combination of slightly lower demand and more vessels are entering service as carriers no longer are able to postpone delivery of new orders from shipbuilders.
   'From all indications carriers will be offering rate decreases by Oct. 1,' he said. ' Eric Kulisch