Ocean container freight rates on eastbound sailings from Asia to the U.S. East and West coasts have bottomed out and will climb about 8 percent by the end of next year, but the increase will not rescue the industry from the substantial losses projected for 2016, U.K. shipping consultancy Drewry said today.
Neil Dekker, Drewry's director of container research, said that the projected rate increases need to be viewed in context against the dramatic price declines that have occurred so far this year and through 2015. For example, following the most recent round of rate talks in the first quarter, eastbound contract rates to the West Coast dropped to $800 per forty-foot equivalent unit (FEU), and rates to the East Coast hit $1,800 per FEU, according to Drewry data. This amounted to carriers effectively giving away about $10 billion in revenue and repeating the mistakes they made during the depths of the Great Recession in attempts to defend their market share, Drewry said.
Though "spot," or non-contract, rates on both trade lanes jumped dramatically during the past few days, following the July 1 imposition of tariff rate increases, it has still been a dismal year for spot pricing to the U.S. Prior to jumping to $1,209 per FEU effective July 1, spot rates on the eastbound lane linking Shanghai to major West Coast ports were quoted at $753 per FEU, a decline of more than 40 percent from the start of the year alone, according to Drewry data published by the Shanghai Containerized Freight Index.
The tariff, or "General Rate," increases are not an indication that ocean carriers have discovered pricing stability, Drewry said, noting that carriers have undercut each other many times to fill vessels, especially in a climate of subpar global demand.
Carriers must take proactive measures to remove capacity whenever it is possible, said Drewry. While the various ship alliances designed to reconcile capacity across the trades are beginning to be implemented, it will take some time for their impact to be felt, Drewry said.