China-Europe Spot Market Ignores Second June Rate Increase

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China-North Europe and Asia-Mediterranean spot rates dropped by 6 percent this week as the market shrugged off another attempt by carriers to push up the freight-all-kinds (FAK) rate on both trades.

Several carriers announced that they would be charging FAK rates of $1,100 on Asia-North Europe and the same on routes to the Mediterranean from June 15, but the spot market headed in the opposite direction. So, too, were attempts to levy a June 1 increase.

Freight rates decline:

The Shanghai-North Europe rate declined to $880 per TEU, while China-Mediterranean spot rates fell to $877 per TEU, according to the Shanghai Shipping Exchange’s SCFI. 

“While the Asia-Europe carriers will likely be concerned that the GRI failed, they can console themselves with the fact that Asia-Europe freight rates have in 2017 benefitted from a level of stability we have not seen in seven years, with spot rates moving within a narrow $250 band around $1,000 per TEU,” said SeaIntel CEO Alan Murphy.

Spot rates higher than last year:

Spot rates on Shanghai-North Europe are almost 40 percent higher than at the same period last year, and this week’s rates on the China-Mediterranean route are 25 higher year-over-year. However, container shipping has entered its slow summer period and while demand has been stronger than expected, disciplined capacity management is helping to keep rates up.

Although as Drewry pointed out, it is a strategy that will have to continue as the industry remains burdened with surplus capacity.

Carriers well-skilled:

“Carriers have thus far shown themselves to be well-skilled in the art of capacity management, but it will not get any easier with millions of TEU of new build capacity due to hit the water over the next few years,” the analyst noted in its Container Insight Weekly.

“They will have to keep up the juggling act for some time to come, until demand reaches a level that can accommodate all of the capacity in the system without any need for adjustment.”

Dewry’s World Container Index:

According to Drewry’s World Container Index, spot rates on the Shanghai-Rotterdam route lost $27 this week to reach $1,712 per FEU. The average composite index of the WCI for the year-to-date, is $1,566 per FEU, which is $122 lower than the five-year average of $1,688 per FEU container, but also 44 percent higher than a year ago.

Drewry said most operators were finally reining in their capital expenses, indicating that the race to add larger vessels may be coming to an end. However, there have been market rumors that some carriers were planning to order new capacity as shipyards offer highly attractive prices.

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Source: JOC

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