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Container rates hit 13-month low in April as outlook worries persist    13/06/2018
Container freight rates hit a 13-month low in April as fleet growth continued, while the economic sentiment in the eurozone weakened to its lowest level in a year and a half.

Long Beach, California. Credit: Southern Cross Maritime

The freight rate index of UK-based consultancy Container Trades Statistics, which includes spot and contract rates, fell by one point to 65 in April, its lowest reading since March 2017.

Drewry, another UK-based consultancy, said in a statement on 3 April that a top-heavy delivery schedule for 2018, with the majority of the largest container vessels being delivered in the three months of the year, had depressed its supply-demand index, but the balance should improve as the year progresses. 

“Unfortunately for carriers, this won’t come soon enough to erase the negative sentiment for annual contracts, hence why we only anticipate a small uplift in average freight rates for the year,” said Simon Heaney, senior manager of container research at Drewry, in the statement.

On the demand side, the eurozone Composite PMI of IHS Markit, the London-based company that also publishes Fairplay, fell to its lowest level in a year and a half in May, a factor to consider as Asia-Europe trade employs most of the largest container ships on order and in service. 

Chris Williamson, chief business economist at IHS Markit, said, “With the economic indicators turning down at the same time as political uncertainty has spiked higher, the eurozone’s outlook has darkened dramatically compared with the sunny forecast seen at the start of the year.”

At the same time, the global container ship fleet has continued to grow. In the mega category of ships between 18,000 teu and 25,000 teu, 15 vessels had been delivered by early June, with a combined capacity of 306,565 teu, figures from the IHS Markit database show. 

The remaining deliveries for this year comprise 12 such ships representing 244,868 teu. Next year, a further 17 vessels with a combined capacity of 356,584 teu are due to enter service, followed by 14 ships totalling 308,000 teu in 2020, the figures show.

“I am more concerned about the fleet growth and rising bunker prices than the economic outlook at the moment,” said Espen Fjermestad, shipping analyst at Fearnley Securities in Oslo.

A number of major deepsea carriers, including ONE of Japan, have introduced a bunker surcharge to tackle the issue of rising bunker costs. “We will still have to see if these measures will be effective or not,” Fjermestad told Fairplay.

Meanwhile, Maersk Line, the Copenhagen-based container shipping giant, told Fairplay in Singapore that it would delay the delivery of its final Triple-E mega vessel on order, saying it saw no need for additional capacity on Asia-Europe trades at the moment.

Weak sentiment in Europe appears to have affected volume growth on southeast Asia-Europe trades, so that demand growth eastbound has clearly outpaced that in the westbound direction.

Drewry said in its weekly newsletter that volumes from Europe to southeast Asia had grown by 18% year on year in the first three months of this year and by 22% in April.

However, the growth from southeast Asia was only 8.2% in the first quarter of 2018, the company said, adding that rising bunker costs should trigger higher freight rates across the board. 

Stronger competition on the eastbound leg should result in a premium over the westbound leg in rate increases in the southeast Asia-Europe trades.

A number of major container lines have reported weaker interims for the start of the year compared with the beginning of 2017. Maersk Line described its first quarter of 2018 result as “unsatisfactory,” while Hapag-Lloyd in Hamburg said margins had been squeezed as bunker costs rose. Cosco Shipping Holdings in China reported a steep fall in first quarter profits despite volume growth.


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