Freight rate volatility to continue

Global container freight rates have recently stabilized as the short term revival in East-West pricing has faded in the face of weak head haul demand and rising fleet capacity. So what should we expect in the year ahead?

Drewry’s Global Freight Rate Index, a weighted average across all main trades excluding intra-Asia, consolidated the gains of December with a 2% increase in January to $2,513 per 40ft. This brought the index up to its highest level since August 2012 and just 4% off last year’s peak month of June.

The Global Freight Rate Index is published in Drewry’s Container Freight Rate Insight, along with freight rates covering over 600 different trade routes around the world and several other aggregated indexes.

Trades contributing to the index’s rise were the transpacific eastbound; Middle East exports to both Europe and North America and imports from Asia; as well as South American, African and Oceania north bound exports.

Routes experiencing falling rates in January included the westbound transpacific back haul trade; South Asian exports to Europe and imports from Asia; the eastbound transatlantic; and Asian imports to South America and Africa.

Rates on the latter had been rising strongly through 2012, but came off the boil in January. For instance, Drewry’s benchmark rate from South China (Yantian) to Brazil (Santos) had reached its highest level in two-and-a-half years by December 2012, but slipped 3%in January to $4,380 per 40ft.

A number of other trades remained stable, including both legs of the Asia-Europe trade; the transatlantic westbound; Asian imports into Oceania; and the regional trade of intra-Europe.

Pricing on the intra-Asia trade (which is not included in Drewry's Global Freight Rate Index) stabilized following two successive months of declines. Drewry's Intra-Asia Freight Rate Index edged up just 0.5% in January.

Despite another year of excess capacity growth, Drewry expects global freight rates to rise through 2013. This is because the majority of new ship deployments are destined for already overburdened East-West trades were pricing is expected to come under pressure.

While carriers also remain challenged by capacity growth on North-South trades, the stronger demand growth will help buoy rates, so lifting average global container freight pricing.

Against this background, Drewry is forecasting a modest increase of 4% in average global freight rates in 2013, with variations between different routes. Furthermore, they expect freight rate volatility to continue as carriers grapple with increasing overcapacity and resort to their preferred short term measures of sailing suspensions and frequent GRIs.

Importers and exporters should prepare themselves for a choppy ride through 2013. < Korea Shipping Gazette >