Shipping industry experiences rate recovery at the start of 2012

The shipping sector has been getting excited by a marked rise in shipping rates over the past month. The shipping newspaper Lloyds List has been reporting that cargoes have been ‚rolled-off‘ vessels leaving China due to a sudden shortage of capacity.

Certainly there is some evidence of a hardening of container rates. Whilst it is hardly infallible, the Shanghai Containerised Freight Index has shown a marked increase recently. From a low-point between December 16 and December 23, China-West Coast rates increased from below US$1,420 to a high on January 5, of approaching $1,700. China-Europe trade has seen an even larger bounce in the period, with a jump from just below $500 to over $700.

This begs two questions. Why have container rates hardened and will this trend last? As for the first question, some ascribe the rise to action by the ‚Transpacific Stabilisation Agreement‘, which stated in November that it would "plan to individually raise all-in freight rates and charges by a minimum of US$400 per 40 ft container, effective January 1, 2012". However, it is difficult to see how the TSA could not only have such a rapid effect on the market, but also effect a shortage of capacity. The Paris-based consultancy Alphaliner has suggested that a wave of scrappage is to blame, with 21,000 TEU worth of capacity sent to the breakers yard in recent months.

Another explanation could be the affect of the agreements between the Grand Alliance and New World shipping alliances to merge and co-ordinate services and possibly capacity. In addition, CMA-CGM and MSC have announced their intention to merge their operations. However the details of both these developments are hard to assess, whilst shipping alliances are far from being a certain means of controlling prices and capacity.

Certainly it is highly likely that lines will be scrapping smaller, older, less cost efficient vessels, however even in the medium term this does not deal with the issue of the introduction of very large new vessels.

Finally there is the issue of demand, which may be the most convincing explanation for higher rates. There are signs that the American economy is beginning to recover, with unemployment falling and retail sales growing. This may well be reflected in higher container shipping volumes across the Pacific which have started to grow for the first time since early 2011. Any substantial increase may well drive prices, particularly in combination with modest rationalisation of capacity.

However the global economic outlook is hardly buoyant and there is still unlikely to be a long term shortage of capacity in any container trade. Therefore, it is unlikely that the trend of rising rates will be sustained.

Quelle: eyefortransport
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