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Carriers hoping for 2017 contracts on spot rates to hold firm

THE next month-and-a-half will be a critical period for Asia-Europe carriers as they try to nail down improved 2017 contract rates with shippers ?and they can ill-afford a major slump in container spot rates during these negotiations.

However, The Loadstar understands that some weaker carriers are still discounting rates significantly to maintain bookings, as shippers become warier of the risk of another container line bankruptcy.

To counteract the rate slippage to North Europe, carriers are seeking general rate and FAK (freight all kinds) increases this month and next, despite the softer market.

CMA CGM recently announced an emergency rate restoration (ERR) of US$200 per TEU from all Asian ports to North Europe.

The top tier of carriers are likely to benefit from a 'flight to safety' sentiment post-Hanjin, and analysts, including Drewry Supply Chain Advisors director Philip Damas, believe that the "corner has been turned" for the beleaguered industry.

Notwithstanding the Hanjin-effect on the market, Mr Damas, said recently there had been a "significant correction in freight rates" in the past six months, following the rate war that saw prices plunge to all-time lows in March and April.

"The environment is very different to a year ago," he said, noting that spot rates from Asia to South America and Asia to Australasia had also seen significant increases in recent months.

Nevertheless, freight rate increases in the pipeline will be too late to substantially improve the estimated $5 billion to $10 billion cumulative loss for the industry in 2016.

During Maersk's third-quarter results presentation on November 2, chief executive Soren Skou advised that higher spot and contract rates would take a while to impact the bottom line ?"our revenue is only recognised as the voyage happens", he explained.