Xeneta Proposes Revolution in Container Shipping - Global Trade Magazine
  May 25th, 2016 | Written by

Xeneta Proposes Revolution in Container Shipping

Sharelines

  • Average rates for the Shanghai-to-Rotterdam trade have fallen 51 percent since July 2014.
  • Patrik Berglund, CEO, Xeneta: Current container shipping rate trends are unsustainable.
  • Low container shipping rates will skyrocket if the industry consolidates.

With ultra-low container shipping rates, multiple ocean carriers teetering on the brink of bankruptcy, and adversarial relationships developing between those shipping goods and the carriers, Xeneta believes the entire container industry must evolve. The Oslo-based benchmarking and market intelligence platform for containerized ocean freight is proposing a radical solution it says would benefit both shippers and carriers – the introduction of a data-driven exchange where shippers and carriers could negotiate rates, including forward rates.

Container rates have collapsed over the course of the last eighteen months. According to Xeneta, which tracks data across 60,000 global trade routes, short-term market average rates for the Shanghai-to-Rotterdam trade, which are typical, have fallen by 51 percent since July 2014, currently standing at $1294 for a 40-foot container.

This, Xeneta CEO Patrik Berglund said, is unsustainable.

“These rates are obviously positive for hard-nosed negotiators wanting to ship freight, but not for the industry, and not for anyone in the long-term,” he explained. “Only a handful of carriers managed to make a profit last year and some of the biggest players, like Hyundai and Hanjin, are close to bankruptcy, while UASC lost a reported USD 500 million in 2015.”

The low rates that are causing distress to the ocean carriers will naturally skyrocket if the industry sees widespread consolidation. “This will hit not only shippers hard,” said Berglund, “but also consumers, as all those Asian-sourced retail and wholesale items on which the western world, Africa, and Latin America relies will become significantly more expensive.

“Regaining a sense of stability wouldn’t just be a good thing for the container vessel operators,” he concluded, “but for all stakeholders, right through the entire chain.”

Berglund, and the team working on the Xeneta platform, see the commoditization of containerized freight as a solution. Commodities are traded on highly regulated exchanges with transparent pricing. Traded items can be hedged, buying or selling forward to manage exposure to risk.

“At the moment shippers and carriers are at loggerheads, fighting to get the best prices in an unstable market,” Berglund explained. “However, by trading the transport as a commodity, at a transparent price, both parties achieve security and get the option of buying or selling forward when they feel the price is favorable to their interests.”

Carrier would have been much healthier if they had sold forward three, five, or seven years when China-Europe rates were in the $1,500 to $2,000 range. “On the other hand, imagine a shipper who bought freight contracts now for two, three, or five years ahead, protecting themselves against future rate hikes when carriers go bankrupt, or when the Chinese economy recovers even by just one or two percent,” said Berglund.

Big shippers, such as Walmart or Carrefour, could forward buy the appropriate number of TEUs for their needs and lock in product pricing and profit, according to Berglund. Carriers, such as Maersk, could sell forward capacity on newbuilds at the point of ordering to ensure their future profitability, rather than risking making huge investments in uncertain markets.

Berglund concedes that there are risks, explaining that shippers who locked in rates two years ago would be “hurting now.”

“But that element of risk is the price to pay for both parties to gain predictability and transparency,” said Berglund. “There are many things to consider, but with the transparent data that is now available it’s easier to make truly informed decisions. It has the power to transform this industry.

“Both carriers and shippers need each other to succeed,” Berglund concluded, “so it’s time they start working together in a way where they both can. An exchange would be the perfect platform for that.”

Need a Logistics Provider?

Compare over 100 Instantly



%d bloggers like this: