Drewry Expects A Fall In Shipping Rates

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Container Carriers are advised to focus on improving their revenue per TEU.

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The shipping consultants Drewry released their container shipping review for the first quarter 2016 on Monday.  The report says that “If losses continue and ocean carriers persist in focusing only on reducing costs rather than improving revenue per TEU, the container liner industry could get very ugly in the second half of the year.”

The average freight rates per container declined dramatically along with the fuel costs that are already at the bottom.  In the present situation, the shipping companies cannot reduce their overhead cost, but must focus on savings per TEU per voyage on the ultra-large container vessels.

The further fall in spot container rates and contract rates have put container line earnings under severe pressure.  Overcapacity can result in damage to almost 85% of head haul load factor.

“We know that for each individual company the desire for big ships is logical, but the impact on the industry at large has been disastrous,” said Drewry, contributing to plummeting freight rates.

“This inflection point will only deliver any kind of market stability if carriers start to use their in-house rate profitability models and offer commercially sustainable freight rates.  Ocean carriers should be looking at revenue per TEU rather than industry load factors.  In a world where overcapacity is a given on every trade, head haul load factors of, for example, 85 percent need not be considered a disaster by any means.  With 2.6 million TEU of new capacity to be delivered by the end of 2017 this kind of load factor and potentially even lower is a new reality, so get used to it,” said Neil Dekker, Drewry’s director of container research.

Please also read our A Perfect Storm Is Brewing To Reshape The Shipping Sector

Source: Drewry Maritime Research

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