Drewry: Contract rates for containerized cargo continue to fall

With freight rates already 20 percent lower than in 2015, the London-based shipping consultant is predicting prices will continue to slide in the second quarter of 2016.    Ocean freight rates for cargo moving under contracts on the major east-west trade routes were down 20 percent in February 2016 compared with the same period a year earlier and are “on course to see further deep reductions from May,” London-based shipping consultant Drewry’s Benchmarking Club said Tuesday.
   The club is a closed user group of multinational retailers and manufacturers that closely monitor their contract freight rates.
   “Following the price war in the spot container shipping market started in late 2015, the contract market is now also going through a catch-up reduction in prices,” said Philip Damas, director of Drewry Supply Chain Advisors, speaking at the Global Liner Shipping conference in London earlier today. “By monitoring contract rates every quarter within the closed user group, companies can determine how well they rank on contract rate levels among their peers and can get increased confidence on actual contract rates which can be secured in today’s very weak market.”
   Drewry said its “Drewry Benchmarking Club Contract Rate Index,” based on transpacific and Asia-Europe contract freight rate data provided confidentially by shippers, declined by another 5 percent in the three-month period between November last year and February.
   This meant a 20 percent cut when compared with rates in February 2015, showing an acceleration of contract rate erosion, even though lower fuel charges accounted for the minority of the reduction in rates.
   “Because many transpacific exporters and importers are finalizing negotiations of new eastbound Pacific contracts to be effective from May 1, Drewry expects a further fall in contract rates during the second quarter of 2016,” the firm said.
   “While exporters and importers are enjoying big reductions in their ocean procurement costs this year, the next trend for shippers could be how to identify and work more with carriers who can maintain reliable service levels despite their revenue pressures and the risk of carrier service instability.”
   Drewry’s benchmarking group “monitors not only detailed comparative contract rates, but also comparative transit times and direct/transhipment service features,” as well as providing rate validity and free time days.