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Container Shipping Prices in Flux as Sector Deals With Rogue Waves

The container shipping industry is being hit on multiple fronts, and the impact is being felt on freight prices for importers and exporters.

“The good news is that the container market is still growing,” Simon Heaney, senior manager at Drewry Container Research, said during the “Container Market & Freight Rate Trends” webinar. “But the bad news is that it is not growing as quickly as possible.”

Heaney said global container port throughput slowed to 4 percent growth in the third quarter, the lowest growth rate since the last quarter of 2016. Drewry has downgraded its global demand forecast for 2018 to 5.3 percent from 6.5 percent previously.

For 2019, the U.K.-based Drewry, a research and consulting services provider for the maritime and shipping industry, expects demand growth to continue in the low 4 percent rate. Heaney said this is based on “greater downside risks and lower GDP expectations.”

“One of the biggest risks is the ongoing trade war between the U.S. and China,” he said. “A 10 percent rise in U.S. import prices from China as a result of tariffs has led to a 6 percent TEU (twenty-foot equivalent unit), or 1 million TEU, decline. The only thing that has helped import prices is that the Chinese yuan has also fallen by about 7 percent against the dollar during this period.”

Greater-than-expected deliveries of new ships and fewer being taken out of commission means supply growth this year will exceed demand for the first time since 2015, he noted. “This has negative implications for fleet managers,” Heaney said. “The market moving toward carriers is slim given the current conditions.”

As for freight rates, he said prices picked up a bit in the third quarter, with Asian shipments to the U.S. increasing as companies sought to get merchandise and materials in country before tariffs on Chinese goods kicked in, but prices should dip in the fourth quarter as demand typically wanes. Carriers also will look to boost rates to counter rising bunker fuel rates, he said, with most already instituting fuel surcharges.

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The World Container Index (WCI) assessed by Drewry, a composite of container freight rates on eight major routes to and from the U.S., Europe and Asia, slid five cents to $1,666.10 per 40-foot container (FEU) last week.

The composite index was flat from the prior week, but was up 38 percent compared with the same period in 2017. The average year-to-date composite index of the WCI was $1,484 per FEU, $32 lower than the five-year average of $1,516 per FEU.

Freight rates for Shanghai to New York decreased $38, to reach $3,348 for an FEU, whereas rates from Shanghai to Genoa dropped $14, to $1,378. On the other hand, rates on Shanghai to Los Angeles grew $31, to $2,621.

For 2019, Heaney said Drewry expects freight rates to improve and grow about 5 percent, with a sharp increase in rates seen for 2020 as new low sulfur fuel mandates go into effect.