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  November 2nd, 2016 | Written by

Container Shipping Still Rocked by Unpredictability

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  • The Hanjin bankruptcy transformed oversupply to undersupply almost overnight.
  • The spot market average price for 40-foot containers climbed 47 percent in the third quarter.
  • Ocean carriers won't negotiate long-term contracts near the bottom end of the current market.

In-depth analysis of third-quarter container shipping costs reveals positive rate trends for the beleaguered container carrier industry. While the effects of the Hanjin collapse are already ebbing, the market remains highly complex and unpredictable.

So says a recent report from Xeneta, the global benchmarking and market intelligence platform for containerized ocean freight. Xeneta crowdsources shipping data from over 600 international businesses, covering more than 60,000 port-to-port pairings and 17 million contracted rates.

According to Xeneta, the recent Hanjin bankruptcy laid the foundations for a trading period like no other.

“It was certainly a stand-out quarter,” states Xeneta CEO Patrik Berglund. “Short-term rates on the world’s number one trade route—Far East Asia to North American main ports—skyrocketed, largely due to Hanjin transforming oversupply to undersupply almost overnight. This enabled significant rate hikes, with the market average price for 40-foot containers climbing by 47 percent across Q3, starting at $1,240 and ending at $1,826.”

But Berglund cautions that the data indicates that prices are already trending down somewhat, “meaning the Hanjin effect is history.” “There is clearly still an issue of structural overcapacity,” he added, “albeit more balanced now, and that pushes prices down, with risks for both the carriers and shippers. Short-term rates on the number two route—Far East Asia to North Europe—actually fell by 24 percent in the third quarter.”

Berglund characterizes the current situation as more of a stabilization of rates within the context of a longer-term climb. Market averages for 40-foot containers hit a low of $662 in April and had risen to $1,500 by the close of September from the Far East to North Europe.

“So, the fall isn’t as serious for carriers as it may seem,” said Berglund. “However, if it continues, that’s another matter. That could bode for a very challenging 2017 for carriers and, therefore, a risky time for shippers who must have predictability in their supply chains.”

On the plus side for carriers, Xeneta’s CEO noted that reported market low rates have risen spectacularly since the first quarter, climbing by 258 percent from the end of that quarter to the beginning of the fourth quarter. That curve stabilized in the third quarter, but remains on an upward trajectory.

The data and trends are complex, Berglund admitted, but the feedback from Xeneta’s network of global shippers is simpler to decipher. Large-volume shippers seeking long-term contracts are reporting carriers aren’t prepared to negotiate near the bottom end of the current market, where many of the older, expiring long- term contracts sit.

“This should wave a red warning flag to any shipper bidding for new long-term rates in January, the European norm, and next May, the U.S. standard,” he said. “It makes it clear carriers have an expectation that the market will continue to pick up.”

Long-term rates have risen through the second and third quarters from a low of $361 in April to $965 in September for shipping a 40-foot container from the Far East to North Europe. “With this in mind,” Berglund cautioned, “shippers probably shouldn’t expect the same low price contracts in 2017 as they secured in 2016.”