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Drewry answers questions on container shipping rates

During the course of both recent webinar broadcasts on container freight rates featuring Drewry’s online Container Freight Rate Insight and new Benchmarking Club, we were deluged with questions but only had sufficient time to answer a few of these. So we have provided a full question and answer summary below for your attention.

If you would like any more information on the material presented on Drewry’s online Container Freight Rate Insight please visit our Container Freight Rate Insight webpage to view a demo.

What is the expectation of contract rate changes for the eastbound transpacific trade?
While we expect the spot market to remain weak, we anticipate that average eastbound transpacific contract rates will rise as carriers seek to exit loss making positions.

What is the outlook and freight rate development on the Asia to Latin America trade?
Our outlook for freight rates on the Asia to Latin American trades is based on our analysis of the South China to Brazil trade. This trade is characterised by high overcapacity, low utilisation levels and slumping demand. The rate levels are currently low but we see room for further reductions in the short term. Rate recovery is not expected before the end of April.

What is the likelihood of the Asia-Europe trade becoming more balanced as Asians start buying more luxury goods from Europe?
Over the long term we expect the eastbound trade to grow at a faster pace than the westbound as Asia consumption increases and sucks in more imports. This will inevitably lead to a more balanced trade. But for the moment the dominant leg will remain the westbound trade. Further information on trade lane volumes are available in Drewry’s Container Forecaster.

Please provide your expectations for rate development on the westbound transatlantic as we currently face the prospect of substantial increases in our contract rates currently under negotiation.
Volumes on the transatlantic trade are buoyant because there is strong demand from a growing US economy while the EU exports are getting cheaper due to the depreciation of the euro. At the same time, some Asia to US volumes are shipped on Asia to Europe services and then transhipped on transatlantic services, which pushes utilisation levels up further because the shipping lines have been very good at limiting the influx of capacity on this trade. The freight rates on this trade are currently very high and we expect them to remain high, even increase further in the coming months. High spot rates, in combination with carriers exiting loss making positions on some older contracts, will definitely increase the average contract rates on transpacific westbound.

What factors do you take into account when calculating your freight rate forecasts?
Our freight rate forecasts are the end result of a combination of several underlying forecasts. First we forecast supply and demand which results in a forecasted utilisation level. Then we combine past correlations of utilisation and freight rate, with a forward projection of ship operating costs into a freight rate forecast.

What is the expectation of contract rate changes for the eastbound transpacific trade?
While we expect the spot market to remain weak, we anticipate that average eastbound transpacific contract rates will rise as carriers seek to exit loss making positions.

What is the outlook and freight rate development on the Asia to Latin America trade?
Our outlook for freight rates on the Asia to Latin American trades is based on our analysis of the South China to Brazil trade. This trade is characterised by high overcapacity, low utilisation levels and slumping demand. The rate levels are currently low but we see room for further reductions in the short term. Rate recovery is not expected before the end of April.

What is the likelihood of the Asia-Europe trade becoming more balanced as Asians start buying more luxury goods from Europe?
Over the long term we expect the eastbound trade to grow at a faster pace than the westbound as Asia consumption increases and sucks in more imports. This will inevitably lead to a more balanced trade. But for the moment the dominant leg will remain the westbound trade. Further information on trade lane volumes are available in Drewry’s Container Forecaster.

Please provide your expectations for rate development on the westbound transatlantic as we currently face the prospect of substantial increases in our contract rates currently under negotiation.
Volumes on the transatlantic trade are buoyant because there is strong demand from a growing US economy while the EU exports are getting cheaper due to the depreciation of the euro. At the same time, some Asia to US volumes are shipped on Asia to Europe services and then transhipped on transatlantic services, which pushes utilisation levels up further because the shipping lines have been very good at limiting the influx of capacity on this trade. The freight rates on this trade are currently very high and we expect them to remain high, even increase further in the coming months. High spot rates, in combination with carriers exiting loss making positions on some older contracts, will definitely increase the average contract rates on transpacific westbound.

What factors do you take into account when calculating your freight rate forecasts?
Our freight rate forecasts are the end result of a combination of several underlying forecasts. First we forecast supply and demand which results in a forecasted utilisation level. Then we combine past correlations of utilisation and freight rate, with a forward projection of ship operating costs into a freight rate forecast.
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