Container shipments ramp up to meet Christmas demand but box rates have failed to feel the benefits. Eleni Pittalis looks at why freight has tumbled for the end of August.
Peak season container demand fails to shake up box rates
By Eleni Pettalis, Commodity Associate
Welcome to The Snapshot – our series which examines the forces shaping and driving global commodities markets today.
It’s the time of the year when retailers in the US and Europe are preparing for the Christmas shopping rush. And that means stocking up on TVs, washing machines and other goods delivered in containers from producers in the North Asia. In a perfect world for shipowners that would mean a jump in container rates on the back of increased demand. However, despite this peak season, liners still fail to secure premiums on the freight.
In fact, whilst liners are fully booked the rate from North Asia to EC North America for a 40 foot container has already dropped by $400/FEU over the course of August. Similarly box rates to the US West Coast have stumbled from highs of $1,700 in early August, settling at $1,450. The problem here lies in the weak negotiating power that liners inherited after years of fleet overcapacity.
When the seasonal surge in demand happens, liners use it as an opportunity to make up for weaker earnings in other months and both ramp up their rates and allocate more vessels to busy lanes. Unfortunately, their big customers, who are well aware of the extra fleet capacity, refuse to pay such inflated rates. And they tend to win the blinking contest every time, as owners quickly get desperate to fill this extra capacity. Liner operators consider box rates to still be feeling the burden from the collapse of Hanjin Shipping this time in 2016, as earnings are far from 2014-2015 levels.
There is still a glimmer of hope in the form of the Golden Week in October when Asian factories close for one week, which creates a rush to move goods before the break. Such temporary spikes in demand may keep the box rates from sliding in the short-term. However, the generally low freight performance in the peak times indicates that a sustained growth in rates is unlikely until the overcapacity issue is resolved.
Until next time on the Snapshot—we’ll be keeping an eye on the markets.