Xeneta: Container shipping could be entering a ‘seller’s market’

The contract freight rate benchmarking company warned, however, that stability will be hard to come by, and if just one or two carriers begin to drop rates and chase market share again, prices will likely fall across the board.    Container shipping freight rates have risen significantly from the historic lows of early 2016, but “structural problems continue to undermine stability, while macro-economic and political factors are casting long shadows” on the liner industry, according to Oslo-based contract rate information company Xeneta.
   “At the moment, it looks like a seller’s market and if the carriers hold firm then shippers will eventually have to accept higher rates,” said Patrik Berglund, chief executive offer of Xeneta. “However, the fact of the matter is there remains a structural overcapacity of containers-to-cargo. That puts carriers in a weak position and creates huge competition for business. So it only takes one or two carriers to drop rates and chase market share and, lo and behold, prices fall again. The volatility will return.”
   “2016 was a tumultuous year for carriers, defined by low rates, overcapacity and the subsequent collapse of Hanjin. However, the final months of the year saw generally higher short-term rates,” the company said in its report.
   According to Xeneta, the market average price for 40-foot containers moving from the Far East to North American climbed from a low of $1,164 in April to $1,716 by the close of 2016. Rates from the Far East to North Europe, meanwhile, jumped from $791 per FEU to $1,878 per FEU by the end of the year.
   “Prices rose from Q3 into Q4 before flattening out a little,” said Berglund, “but the carriers’ position improved significantly from the dire situation they found themselves in early 2016. That said, it had to.
   “With the majority of carriers losing money hand over fist last year, the industry simply wasn’t sustainable. And that’s bad news for shippers, as well as the shipowners, as they need optimal reliability in their supply chain. Stability is what all parties desire – built on a foundation of fair rates – but that still looks elusive as we head into 2017,” he added.
   Drewry Supply Chain Advisors, which like Xeneta provides information for shippers to benchmark freight rates, says rates for beneficial cargo owners are likely to rise by more than 10 percent for 2017 contracts on most routes.
   The Drewry Benchmarking Club similarly allows beneficial cargo owners to confidentially compare cost and supplier terms in ocean transportation contracts. Drewry says companies that make “fast moving consumer goods” and retailers “are generally ahead of industrial manufacturers when it comes to using benchmarking to negotiate contracts.”
   And both Xeneta and Drewry say their freight comparison products are becoming much more popular these days.
   Drewry does not say how many companies are members of its benchmarking club, but that they have increased membership five fold since 2014. According to Philip Damas, head of Drewry’s logistics practice, “In the past 6 months, the ocean transport spend under carrier contracts benchmarked by beneficial cargo owners via the Drewry Benchmarking Club global initiative increased by 50 percent, to $2.2 billion.”
   Berglund said for carriers, “profit is still the Holy Grail and all parties need to chase the pennies” in order to survive.
   “Whoever achieves the lowest cost base per TEU, while at the same time optimizing their agreements on every single transaction, will emerge as the victors in this ultra-competitive landscape,” he added. “A few dollars here and there on every container can add up to millions in profit for the biggest players.”
   Xeneta has also seen growth in its user base, with membership growing from 600 to more than 700 companies, feeding in data for over 160,000 port-to-port pairings and more than 23 million contracted rates, up from 17 million in the third quarter of 2016.
   Xeneta users have reported that “long-term rates that have been locked are high in relation to 2016 – actually closing in on 2015 levels – but the trend is to put the typical January negotiations (when European shippers secure agreements) on hold,” the company said.
   “There’s such uncertainty in the market that shippers are stalling coming to the table, they’re unsure of where they stand,” said Berglund. “The fact that the carriers are prepared to accept this delay shows they believe they’re in a strong position – that prices will continue to develop over the coming months, allowing them to lock in higher rates when talks finally begin. This is a clear indication of positive sentiment from their side.”