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The Pendulum swings the other way

The Pendulum swings the other way

CargoNOW and LogiSYM have been writing for some time that the astronomical rates MLO’s are charging are not sustainable in the long term. Ocean carrier voyage results could soon start appearing in red ink as freight rates flirt with breakeven levels on major east-west tradelanes.

Although the container spot rate crash appears to have bottomed-out in the past few weeks, annual contract rates are also now in sharp decline.

According to Drewry’s latest Container Insight report, carriers have “lost control of the container market” by failing to manage capacity and will “act on capacity only when they are forced to do so by heavy losses”, reports London’s Loadstar.

The maritime research consultant claimed that “a deep-seated instinct to preserve volumes has kicked in”, with carriers discounting rates heavily to secure short-term bookings.

It said that, until a few months ago it was fairly confident the lines would take “the necessary steps” to reduce capacity before the market got out of control, but now admits it was wrong and that it gave carriers “too much credit by thinking they would proactively manage capacity”.

Drewry said that, after talking to various stakeholders, it had been convinced a structural change had occurred in the liner industry and that “consolidation and more efficient carrier alliances would help change old habits”.

“That was wrong too,” said Drewry.

“The price paid for reverting to type is that contract quotations are now being set at a fraction of the levels of a year ago,” it said, adding it had “vastly downgraded freight rates and profitability forecasts” showing that, from Asia to North Europe and Asia to the US west coast, revenues were running at close to round-voyage slot costs.

Drewry described the scenario on the key tradelanes as “akin to a doomsday clock, counting down the time before carriers incur losses”.

Meanwhile, anecdotal reports suggest carriers are “waiting for more visibility” after the Chinese New Year (CNY) on January 22 before taking more radical action, such as suspending more network loops, but that they remain optimistic there will be an inventory restocking rebound in demand post CNY.

The market overall is optimistic that China’s removal of Covid-19 restrictions and potential restocking demand could drive a recovery in shipments post-CNY and lift rates in the near term.

 

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