Analysis, trends, market movements, decision tools, globalization of transport, econometric models in logistics, transport, shipping and its industries
LOGISTICS, TRANSPORT AND SHIPPING NEWS TRUCKING INDUSTRY NEWS
28/09/2017
Drewry says that the oscillation in freight prices is not worrisome.

Carriers’ lack of success implementing spot market freight rate increases in September is less worrying than it appears. The underlying trend shows that lines have tamed some of the volatility.

Drewry’s World Container Index, a composite of weekly container freight rates on eight major routes to and from the US, Europe and Asia has decreased in each of the past six weeks. Over that period the index has shed around $190, just over the sum it had previously added in a single week at the start of August.

On the surface the characteristics of this year’s spot market are no different to previous years. Weekly price cuts are common; the WCI has fallen in 29 of 37 weeks this year, which is a comparable ratio to those seen in other years in our series. Just as in the past, the tendency has been that the weekly erosion is punctuated by the life-giving properties of a General Rate Increase (GRI) at the start of a given month.

The difference this year is that the GRI inflation has been lower, averaging $120/40ft versus $160/40ft in 2016, but the weekly decreases have been much shallower. In 2016 the WCI fell in 31 of 52 weeks at an average of $82/40ft; so far in 2017 the average weekly slide has been $43/40ft.

In essence, carriers have experienced fewer highs but less alarming lows this year. The end result of this greater calm is that freight rates along some of the main East-West headhaul trades are up by as much as 50% year-to-date.

While carriers have become accustomed to weekly decreases they have always needed the monthly GRIs to give life to sagging rates and prevent a prolonged tailspin. Missing out in September is obviously not what they wanted, especially after having also failed to get any traction in June, but it is important to add some context before we rush to pronounce the market’s collapse. It is not uncommon for GRIs to come and go without success, only for the pattern to re-establish itself very quickly. For example, lines succeeded with most GRIs in 2016, including September, but then missed out in October before striking it rich once again in November.

In any case, the importance of GRIs and their successful adoption is over-stated. In reality GRIs have always been a rather crude device to raise rates (usually only temporarily) without much basis in real supply-demand economics. Their size and success rate has in the past more often depended on how well carriers pleaded poverty when rates sunk to non-compensatory levels.

As such, in a more profitable and stable environment it won’t be a disaster for carriers if the traditional pattern does not reassert itself and future GRIs have limited (or even no) success, simply because there will be less need for them. In this scenario, it will be more rewarding to measure how long rates have been profitable than whether or not an individual GRI has been successful or not.

Using this criteria a measure of industry health, carriers are undeniably winning right now. Freight rates have been profitable for most of the year and are significantly higher on average than last year, supported by solid supply and demand dynamics. Moreover, the some of the extreme volatility that has blighted the industry in the past has been tamed.

After five years of wild swings in pricing, the Asia to North Europe trade has been a relative ocean of calm thus far in 2017 with the standard deviation in weekly rates more than halving. The WCI sub-index for Shanghai to Rotterdam shows that 2017 year-to-date rates are up by 51% on average over the same period last year; staying within a profitable and much narrower spread of $1,500/40ft to $2,200/40ft. Removing some of the unpredictability in rates is welcome news for carriers and shippers alike.

 

 

GIVE US YOUR OPINION.
Message




Data protection and cookie policy

© Premium Difusión. All rights reserved.