SeaIntel: Competition lessens ocean freight rate spread

   Direct liner carrier service competition has a significant impact on the spread between high and low rate levels, according to research from SeaIntel Maritime Analysis.
   “We have investigated the difference in freight rates across 130 individual port-port trades from Asia to the U.S. East and West coasts,” the Copenhagen-based analyst said in this week’s issue of its weekly newsletter SeaIntel Sunday Spotlight. “We then matched this rate difference against the competitive pressure from direct services facing each port-port corridor.
   “In the Asia-to-U.S. West Coast we find that any port-port combination with more than 10 different weekly services typically have a spread of $275 (per) FEU between the low and high rates. However, as the number of direct weekly services decline below 10, we find that the price spread increases significantly, trending towards a doubling of the price spread.”
   Looking at a more specific lane – ports in northern China and Korea to the U.S West Coast – SeaIntel found a clearer link.
   “To the extent the sheer number of services is an indication of the competitive pressure, we clearly see that for the Asia-to-U.S. West Coast trade, increased competitive pressure results in up to a 50 percent reduction in the freight spread.”
   SeaIntel’s analysis is based on information from 8,000 active contractual freight rates at a port-to-port level, spanning 130 individual port-to-port services. When calculating the freight rate spread, the low rate is the rate whereby only 25 percent of rates are below this point, and the high rate is the rate whereby only 25 percent of the rates are above this point, SeaIntel explained.
   “The existence of a freight spread is not surprising,” the analyst said. “This is due to a number of factors, including shipper volume, service level offered by the carrier, commodity, seasonality of the cargo, etc. What is perhaps more surprising is that the impact of number of weekly services on the freight spread is not the same for U.S. East Coast versus U.S. West Coast.
   “For the U.S. East Coast we find a less clear relationship between the number of weekly services and the freight spread – and the relationship is inversed. For the U.S. East Coast, the trend is that a reduced number of direct services also results in a reduced spread in freight rates.,” SeaIntel said.