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Ocean Freight Rates Riding High as Carriers See Calmer Seas

As trade demand comes up from the bottom and streamlining of routes takes effect, ocean freight rates and profits are on the rise.

Drewry’s composite World Container index dipped 0.7 percent to $2,569.68 per 40-foot container or equivalent unit (FEU) for the week ended Oct. 22, but was up 107.6 percent compared with same period in 2019, the maritime research and consulting services company reported Thursday.

Drewry expects rates to remain steady in the coming week. The average composite index of the WCI year-to-date, assessed by Drewry, was $1,894 per FEU, which was $434 higher than the five-year average of $1,460 per FEU.

“The recovery in container shipping seen since April should continue during the third quarter of 2020 for most routes, driven by faster recovery in the consumption of goods than of services, the growth of e-commerce, and usual seasonality,” ocean carrier CMA CGM Group said last month in reporting second-quarter results. “These factors recently drove freight rates to historically high levels, in particular on transpacific routes.”

Looking at specific trade routes, freight rates from Shanghai to Genoa, Italy, fell 2 percent, or $47, to $2,683 per FEU, while rates from Shanghai to Rotterdam declined 1 percent, or $25, to $2,186 per FEU. Spot rates on Shanghai to Los Angeles declined $15 to $4,038, but were 188 percent above the level of the previous year.

Similarly, Shanghai to New York ocean freight rates dropped $7 to $4,874 per FEU, but were still 103 percent above the level of the same week of 2019. Rates on Rotterdam to Shanghai, Los Angeles to Shanghai, New York to Rotterdam and Rotterdam to New York remained stable at $1,100, $518, $552 and, $2,016 per FEU, respectively.

For major ocean container carriers, conditions have markedly improved form the early days of the pandemic.

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“Despite the Covid-19 pandemic, our group reported excellent results during the second quarter, thus strengthening our financial structure,” Rodolphe Saadé, chairman and CEO of the CMA CGM Group, said. “Thanks to our agile business model and synergies between our shipping and logistics business activities, we were able to adapt our service offerings to meet our customers’ fast-changing needs. We have also significantly reduced our costs and benefited from the drop in oil prices.”

Prices for a barrel of light sweet crude oil were down 1.43 percent to $41.46 on Oct. 21 on the New York Mercantile Exchange (NYMEX), according to WTRG Economics.

During the second quarter, CMA CGM Group posted net income of $136 million compared with a loss of $109 million during the second quarter of 2019, and a profit of $48 million during the first quarter of 2020.

Revenue for the period reached $7 billion, down 9 percent compared with the second quarter of 2019, due to a slowdown in volumes related to the impact of the global public health crisis on international trade. Volumes carried during the second quarter were down 13.3 percent year over year, which the company said was better than initially expected. Saadé said third quarter results are expected to show a marked improvement.

In releasing preliminary results for the third quarter, A.P. Moller-Maersk reported unaudited revenue of $9.9 billion and earnings before interest, taxes, depreciation and amortization (EBITDA) before restructuring and integration costs of $2.4 billion, driven by a continued recovery in demand. Volume in its Ocean division declined by around 3 percent in the period compared to previous year, which was slightly better than the anticipated mid-single digit contraction.

“A.P. Moller-Maersk is on track to deliver a strong third quarter, with solid earnings growth across all our businesses, in particular in Ocean and Logistics & Services,” Søren Skou, CEO, said earlier this month. “Volumes have rebounded faster than expected, our costs have remained well under control, freight rates have increased due to strong demand and we are growing earnings rapidly in Logistics & Services.”

The outlook for next year remains uncertain due to the ongoing pandemic, Skou said, noting that the positive impact from stimulus packages may be lower in 2021, potential new lockdowns will impact demand and the timing and effectiveness of a potential vaccine will inflence 2021.