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Freight Rates Up and Rising for East-West Shippers

Contrary to the downtrend in costs this year, ocean freight rates for major East-West trade routes are up and rising.

Average Transpacific and Asia-Europe freight rates increased 3 percent in the latest quarter after falling for six quarters straight, according to the Drewry Benchmarking Club Contract Rate Index.

“2017 will be the first year of increasing contract rates since 2010 and this could come as a shock to some logistics managers who had got used to deflationary international transportation costs year after year,” said Philip Damas, head of the logistics practice of Drewry, a U.K. shipping consultancy.

Shipping rates are going to go up even despite the over-capacity issues plaguing the sector—and that over-capacity is expected to be even more severe in 2017. As Drewry noted, higher fuel prices, the previously unsustainable rate levels and the Hanjin bankruptcy upset are weighing heavily on pricing.

Some European importers have already received annual carrier bids for contracts starting in January with rates higher than this year.

Retailers and manufacturers questioned for the benchmarking report are concerned that the ocean carrier industry’s rapid consolidation will change their bargaining powers “substantially.”

What’s more, carrier instability is expected to increase in the coming year, potential future alliances and their effects on the market will add to uncertainty, as will the impact of big ships on port performance.

“We expect that ocean contract negotiations in the next few months – including the transpacific ones in March-April – will be tougher for shippers and also more complex, so exporters and importers need to be equipped with the best data, sourcing technology, practices and market insight,” Damas said.

Drewry also said earlier this month that the number of idle container ships has risen to a high of 1.7 million twenty-foot equivalent units, nearly double what it was at the same time last year, and will likely continue to rise until more consolidation brings supply closer in line with demand.