Drewry: Low rates in transpacific, Asia-Europe trades to continue

Nevertheless, ocean carriers have announced general rate increase for July 1.    The outlook for freight rates in the headhaul container trades from Asia to the U.S. and Asia to Europe for the medium to long term is negative, according to consultants at London-based Drewry Supply Chain Advisors, though there may be some improvement during the coming summer peak season.
   During a webinar Tuesday, Stijn Rubens, a senior consultant, said rates in the trade from Asia to the U.S. have been in a “free fall” since a contract signed by employers and the International Longshore and Warehouse Union in February removed capacity constraints in the trade.
    Rubens noted general rate increases in March, April and June have been either “completely ignored by the market or resulted in a one week blip in what was otherwise a downward trend.”
   Labor problems during the ILWU negotiations resulted in a temporary boom in spot rates on services from Asia to the U.S. East Coast. Shipping lines added East Coast strings, both in response to the better rates and in anticipation of the planned opening of the Panama Canal next spring.
   Since then, however, rates have tumbled — on the East Coast because of the additional capacity and migration of cargo back to the West Coast with the ILWU contract agreement, and on the West Coast because of additional capacity due to upscaling of ship sizes.
   The Transpacific Stabilization Agreement has announced a July 1 GRI of $600 per FEU, plus a peak season surcharge of $400 per FEU also to take effect on July 1.
   Asia-Europe westbound rates have bottomed out, said Rubens, after a dramatic collapse earlier this year when rates fell 46.6 percent according to Drewry’s index for the trade, from $2,965 in January to $1,438 in April, the lowest value since Drewry created the index in 2011.
   GRIs in March and April were completely ignored by the market and while rates catapulted up in mid-May by $1,000 per FEU, by the end of the month had fallen back to $840 per FEU. A GRI for June 1 was again ignored and spot rates since then have continued to tumble.
   Carriers have announced planned GRIs of $1,800 to $2,600 per FEU on July 1 for the Asia to Europe trade.
   Rubens said slot supply in the Asia-Europe trade was up only 5 percent in first five months of 2015 compared to the same period a year ago – “Not at all an outrageous addition of capacity.” But he said demand in the first four months of the year has been down 3.3 percent, largely because of weak demand in April.