A decline in transpacific freight rates drove down the composite World Container Index (WCI), assessed by Drewry, for the week ended Thursday.
“With initiation of Chinese New Year, we expect the rates to fall,” in coming weeks due to low demand, Drewry said. The Chinese New year begins on Tuesday, with factories in China and some facilities in Vietnam and elsewhere in Asia closing for several weeks surrounding the celebration.
Container freight rates for eight major routes to and from the U.S., Europe and Asia fell 2.6 percent to $1,719.61 per 40-foot container or equivalent unit (FEU) for the week. However, the index was still up 11.7 percent up compared with same period in 2018.
The average composite index of the WCI year-to-date was $1,744 per FSU, which was $240 higher than the five-year average of $1,504 per FSU. Freight rates on Shanghai to New York shipments plummeted $249 to $3,131 per FEU. Similarly, rates from Shanghai to Los Angeles declined $117 to $2,080 per FEU.
Conversely, freight rates on ships from Shanghai to Genoa, Italy, increased $28 to reach $1,883 per FEU.
While lower demand, particularly on routes emanating from Chinese ports, might be holding down freight rates, other factors portend higher rates on the horizon.
Under new industry regulations, the sulfur content of bunker fuel content must be 0.5 percent compared to the current 3.5 percent fuel sulfur content ceiling. To become compliant, ship owners are investing in compliant fuels, liquid natural gas or scrubber technology. They are also instituting bunker adjustment factor surcharges to recover the costs of compliance with a global sulfur cap that enters into force on Jan. 1, 2020.
The latest to institute surcharges is Ocean Network Express (ONE), which said last week that it was putting a $15 per 20-foot container fuel surcharge as of March 1 in light of the new low-sulfur fuel mandate. Ocean Network Express was established in 2017 by the integration of ‘K’ Line, MOL and NYK.
“ONE continues to explore all avenues available to mitigate fuel consumption and fuel associated costs for the benefit of the global environment and the supply chain costs of our valued customers,” the carrier said.
Major carriers Maersk and CMA CGM have also imposed fuel surcharges ahead of the deadline for integrating higher-cost, lower-sulfur fuels next year.