Freight Rates Rise Sharply on Surging Demand

Spot fares on container ships are trending higher, lifted by robust shipping to the US and a decrease in capacity cause in part by the failure of South Korea’s Hanjin Shipping.

Freight rates for vessels departing Asia for the US West Coast are currently around $1,780 per 40-foot container, 60% higher than a year ago. Rates to Europe are around $860 per 20-foot container, 2.6 times as high as a year ago, Nikkei reported.

While rates have fallen 20-30% compared to the end of last year and just before the Lunar New Year, when cargo shipping is most robust, they remain at a level well above the year-earlier period.

Buoyed by strong consumer spending, cargo shipments continue to rise. Volume to the US in January was 1.35 million 20-foot-equivalent units, up 4% on the year, according to the Japan Maritime Center. Cargo volume to Europe rose 1% in 2016, turning upward for the first time in two years.

In addition to growth in volume, a drop in available space is contributing to high charter rates. Hanjin Shipping, which had a 7% market share on routes to the US, failed in August of last year, and some of its ships are not running.

In addition, there has been a noticeable trend among shipping alliances to remove vessels from service to pare the oversupply. The G6 Alliance, which includes Mitsui O.S.K. Lines and Nippon Yusen, pulled from two to four vessels from service on routes to North America after the Lunar New Year, the same number as last year.

The 2M Alliance between A.P. Moller-Maersk Group and Mediterranean Shipping extended to two weeks its typical suspension of service for container ships headed from Asia to the eastern Mediterranean during Lunar New Year. An alliance between Kawasaki Kisen Kaisha and Evergreen is reducing the supply of ships by 1% on routes to the North America West Coast and 6% on East Coast routes from January through March.

The combination of cargo growth and reduced shipping space has pushed load factors higher, with both Nippon Yusen and Kawasaki Kisen expecting improvement in both North American and European routes in the January-March quarter.

High spot rates could lead to higher annual charter rates, which are typically set in April and May. Rate hikes are key to addressing pretax losses incurred by container ship operations.