Steep rises in contract rates expected

With spot rates rising by 73% in the last nine months, major importers from Asia are facing increases of up to 20% and fewer perks as they engage with the container lines in annual contract discussions.

The collapse of Hanjin Shipping, the biggest demand spike since 2008 and the consolidation that will reshape the global alliances from April has bred uncertainty for the year ahead as four alliances become three (2M Alliance, THE Alliance, and the Ocean Alliance) and the number of global liners is whittled down to just ten.

In a recent JOC report on contract negotiations a director for a global retailer said that container lines were offering beneficial cargo contract rates that were up about $500/feu on those secured in 2016.”

In a further comment he said. “I think that is moderate behaviour and to be commended, as opposed to trying to get ludicrous increases as was the strategy in 2015, causing a collapse after the boom in FAK [freight all kinds] rates in 2014, and setting the pattern for the extreme volatility,” he said.

A European retailer confirmed that his annual rates have been increased by $250/teu compared with 2016 and added. “The rates have been extremely low and our expectation is that the market will be higher. We have already concluded our rate discussions and know that tenders submitted after ours have been settled higher,”

Chinese New year falls on January 28th with factories closing for at least two weeks, which is continuing the current demand spike, as shippers try to transport their cargo out of Asia ahead of the holidays. The anticipation is a spike in volumes in early-mid January followed by a sharp decline through February.

In 2016 spot rates peaked for just 12 weeks, but industry pundits are predicting westbound price increasing above current peaks in 2017.

“There is a general acknowledgement that head haul contract rates have bottomed and need to rise next year, but in an environment of such dramatic change, one should not expect BCO rates to soar,” analyst Drewry said.