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Ocean Freight Rates Hit Trough But Fuel Prices Could Stir Waters

There are converging dynamics in ocean freight that seem to mostly be working in the favor of shippers, but what would sailing the high seas be without at least some choppy seas.

The World Container Index assessed by Drewry, a composite of container freight rates on eight major routes to and from the U.S., Europe and Asia, was down 1.8% to $1,511.64 per 40-foot container or equivalent unit (FEU), for the week ended Thursday and was also 14.6% lower than a year ago.

The average composite index, assessed by Drewry for year-to-date, was $1,463 per container, making it $110 lower than the five-year average of $1,573.

The composite index declined $27 to $1,512 per FEU this week. Rates on Shanghai-New York routes fell $88 per FEU to reach $2,856 and rates on Shanghai to Los Angeles routes dropped $46 from last week to $1,519 per FEU.

Rates from Shanghai to Genoa, Italy, were stable, while rates on Shanghai to Rotterdam, Holland, shed $41 to reach $1,772 for an FEU. Meanwhile, general rate increases on Transatlantic trade strengthened rates for Rotterdam to New York by $78 to $2,067 for a, FEU.

“We expect freight rates to weaken next week on account of demand downturn during the Chinese Spring Festival,” Drewry said.

Factories in China and Vietnam are set to shut down for several weeks for Lunar New Year celebrations and holidays.

[Read more about ocean freight: The Top Six Logistics Issues Companies Will Face in 2018]

Meanwhile, prices of bunker fuel used by container ships increased 130 percent over the last two years to about $390 a ton in Rotterdam, New York and Shanghai, after hitting a three-year low of $170.05 in January 2016, according to IHS Markit.

Although IHS Markit expects prices per ton to hover between $300 and $350 through 2018, analysts expect prices to slowly rise in 2018.

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There are also signs that shippers could be paying even higher fuel surcharges for container shipping this year, as ocean carriers phase in added costs for new, cleaner low-sulfur fuel.

Mitsui O.S.K. Lines this week signed a long-term charter contract with Total Marine Fuels Global Solutions for a large liquid natural gas (LNG) bunker vessel to be delivered in 2020.

The ship will operate in Northern Europe and will be the first ever capable of supplying large quantities of LNG in one single bunkering operation. With this vessel, Total Marine intends to serve the emerging marine LNG market for the container ships segment, including those sailing on the Europe-Asia trade. This includes supplying CMA CGM’s new LNG mega container ships, under a 10-year contract signed in December.

CMA CGM said the use of LNG is a technological breakthrough that will yield significant benefits compared to heavy fuel oil, including up to 25 percent less carbon dioxide emissions, 99 percent less sulfur emissions, 99 percent less fine particles and 85 percent less nitrogen oxide emissions.

On top of this, new rules by the International Maritime Organization that allow bunker fuel to contain only 0.5% sulfur take effect in 2020, which some believe could increase the volatility of fuel prices and demand for low-sulfur fuel outstrips supply. IHS Markit forecasts the new, low-sulfur fuel will cost $500 to $650 per metric ton by 2020.

The Port Authority of New York & New Jersey reported this week that the completion of the Bayonne Bridge Navigational Clearance Project last June helped drive cargo volumes in the Port of New York and New Jersey to new record heights in 2017 and usher in a new era of larger, environmentally friendly ships arriving in port. This was also made possible by the completion of the New Panama Canal completed last year that allows megaships to pass through its locks en route to the East Coast from Asia.

During 2017, the port handled 6.71 million TEUs (20-foot cargo container or equivalent unit), a 5.3% increase over 2015, when the previous annual record was established. The record volumes allowed the port to maintain its position as the third largest port in the U.S. with 15.4% market share and the busiest on the East Coast with a 32 percent market share. Even with the increase in cargo volume since 2015, the particulate matter and nitrogen oxide emissions created by port activities have gone down by more than 14 percent, due to the port’s Clean Air Strategy environmental programs.