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Freight Rates Roll Lower, but High Fuel Prices Likely to Keep Shipping Costs Inflated

While freight rates dipped a bit last week, they remain high comparatively high, and with fuel prices showing no signs of falling, shippers can expect costs to stay inflated.

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, was down 1.6% to $1,725.32 per 40-foot container or equivalent unit (FEU) for the week ended Thursday.

However, the composite index was up 24.6% compared with same period of 2017. The average composite index of the WCI for year-to-date, was $1,459 per FEU, which is $57 below the five-year average of $1,516 per FEU, Drewry noted.

The index fell as a result of freight rates on the Shanghai to Rotterdam, Holland, route decreasing $107 to $1,555 per FEU, as well as Shanghai to Genoa, Italy, falling $55 for an FEU to $1,518. This was balanced by rates from New York to Rotterdam rising $20 to $579 for an FEU and rates on the Shanghai to Los Angeles route also moving $20 to $2,382 per FEU. Drewry said it expects rates to remain the same next week.

While the relatively high freight rate might be difficult for importers and exporters, it’s good news for carriers that have had to deal with inflated fuel prices cutting into profits.

Rodolphe Saadé, chairman and CEO of the CMA CGM Group, commenting on second quarter results this month, said, “CMA CGM has recorded a core EBIT margin close to the first quarter, as well as a positive net income in spite of a sharp increase in fuel prices.” Adding to that, he said, “We anticipate an improved operating margin thanks to the rise in freight rates and sustained volumes.”

Brent crude oil was selling at $78.70 a barrel on Friday compared to roughly $53 a barrel one year ago.

Maersk Line said this week that it will pass on costs to customers for increased fuel prices made necessary from mandated decreases in the fuel sulfur content, and others are likely to follow. Maersk said it will institute a new bunker adjustment factor (BAF) surcharge to recover the company’s costs of compliance with a global sulfur cap that enters into force on Jan. 1, 2020. Maersk noted that the regulation was developed and adopted by the International Maritime Organization (IMO), an agency of the United Nations.

Based on expected differences in price between current 3.5% bunker fuel and compliant 0.5% fuel, estimates are that the additional cost for the global container shipping industry to comply could be up to $15 billion. Maersk Line said it expects the extra fuel costs could exceed $2 billion.