US$573. That’s what it cost to ship a 40ft container from Asia to Europe last week, according to the Shanghai Container Freight Index.
The Asia westbound trades are breaking shipping line hearts at the moment. Even to the Mediterranean, rates fell 6.6 percent to $856 per box.
Across the transpacific the rates are better, but still way too low for comfort. Rates to the US East Coast fell three percent to $2,709 last week, and the index of rates from China to the West Coast fell 1.3 percent to $1,481, down more than 30 percent from a year ago.
So it comes as no surprise that the Transpacific Stabilisation Agreement member lines want to impose a rate hike of US$400 per FEU on January 1. In Asia export terms, January is quieter than a graveyard and twice as dead, but it is a critical time for the carriers.
With the annual transpacific contract negotiations starting at the end of the first quarter it is important that the freight rates are strengthened before the talking starts. Shipping lines are worried that the rock bottom rates will influence the 12-month service contracts (Asia-Europe does not use this system).
But it is not going to be easy. The carriers will have to put their best and most diplomatic people on the job because their task will be to convince skeptical shippers that rates must improve so service levels can be guaranteed and that cargo demand will increase and space will become scarce.
The only problem is that container lines are facing excesses in capacity that far outdistances the growth in container volumes. That’s if there is any growth in container volumes. Consumer spending has become more reserved in the US and they are no longer “spending next year’s money”, as China’s news agency Xinhua said in an editorial yesterday.
This slowing demand, ongoing market uncertainty and glut of capacity is not conducive to raising rates and the carriers will find it difficult to convince shippers otherwise on January 1. The only option to limit capacity is to lay up ships and there are still no plans by the big carriers to do so. Surely only a matter of time.
Shippers may be benefiting from the low rates, but as they found in 2009, when the lines are under profitability pressure the operating environment can get very hectic very quickly with services cancelled and booked cargo being rolled.
No one wants to go back to that, but it seems inevitable at this point.