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Fluctuating Ocean Freight Rates Reflect Choppy Seas in Commercial Transport

Ocean container freight rates are experiencing fluctuations over unstable economic conditions, added costs due to the switch to low sulfur fuels and the upcoming disruption in production and shipping schedules from Lunar New Year.

The World Container Index (WCI) assessed by Drewry, a composite of container freight rates on eight major routes connecting the U.S., Europe and Asia, was up 5.1 percent, or $77, to $1,591.80 per 40-foot container or equivalent unit (FEU) for the week ended Dec. 19, but was down 2.2 percent compared with same period of 2018.

The average composite index of the WCI year-to-date was $1,420 per FEU, which was $24 higher than the five-year average of $1,396 per FEU.

Spot rates on Asia-Europe trade spiked during the week, with freight rates on Shanghai, China, to Genoa, Italy, routes jumping more than 30 percent, or $558, to $2,372 per FEU and are now 43 percent higher than a year ago, Drewry reported.

Similarly, rates from Shanghai to Rotterdam, the Netherlands saw a modest increase of $86, bringing rates to $1,999 per FEU. Also, spot rates from Los Angeles to Shanghai increased 15 percent to reach $408 per 40 FEU. Drewry said it expects these gains to erode in the coming weeks.

Søren Skou, CEO of A.P. Moller-Maersk, said in reporting third quarter results in November, that earnings before interest, taxes, depreciation and amortization (EBITDA) in the Ocean division improved 13 percent to $1.3 billion, and EBITDA margin increased to 17.4 percent, reflecting the focus on profitability through capacity management and operational performance, which mitigated lower freight rates and modest volume growth in the period.

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Maersk now expects EBITDA for 2019 in the range of $5.4 billion to $5.8 billion, from the previously forecast $5 billion range. Organic volume growth in Ocean is now expected to be slightly below the estimated average market growth, which is now projected to be in the range of 1 percent to 2 percent for 2019.

“The guidance continues to be subject to uncertainties due to the weaker macroeconomic conditions and other external factors impacting container freight rates, bunker prices and foreign exchange rates,” Maersk said.

Freight rates are also in flux due to the International Maritime Organization (IMO) regulation to reduce the maximum sulfur content of marine fuel to 0.5 percent from 3.5 percent, which started on Jan. 1. Many carriers have instituted surcharges to offset increased costs.

In addition, January rates are usually somewhat volatile thanks to Lunar New Year factory shutdowns in China.

Global Port Tracker forecast January shipments to be down 1.2 percent to 1.87 million 20-foot containers, or TEUs, compared to a year earlier, while February–traditionally the slowest month of the year because of Lunar New Year factory shutdowns in Asia–is forecast at 1.62 million TEU, down 0.3 percent from a year ago.

Lunar New Year begins on Jan. 20, while in 2019 it began on Feb. 5. March cargo shipments are forecast at 1.76 million TEU, up an unusually high 9.2 percent due to fluctuations in the Lunar New Year calendar.