As we conclude 2017, one of the main questions among shippers is whether the strong upward trend in ocean freight rates in 2017 will continue in 2018.
There were several factors that played role in the increase of ocean freight rates in 2017.
One was the temporary surge caused by the Hanjin bankruptcy in September. The aftershock, and fear, among shippers pushed the shipping industry to accept higher prices. The industry then moved away from discounted rates, engaged in a price war, and dealt with aggressive tactics employed by steamship lines who were looking to obtain bigger market shares. This trend was commonly accepted among shippers to ensure continuity of service.
2017 also witnessed higher trade growth, and a volume surge, coupled with increasing fuel prices, kept supporting higher rates.
London-based Drewry Supply Chain Advisors claims the same factors will keep on pushing rates higher, while stabilizing the market in 2018. Despite increasing number of deliveries of large container ships scheduled for 2018, Drewry officials do not expect a new price war scenario in 2018, as ocean freight industry faces growth in demand, and higher carrier concentration (with new alliances) influencing the market.
Freight rates kept on increasing steadily, with an average of 10% for the first 3 quarters of 2017, compared to 2016. Many considered it a reaction, and reversal, to 2016’s deflationary trend in ocean freight. The shipping industry also experienced an 30% average increase in fixed annual contract rates for high volume Transpacific, and Transatlantic, trade lanes.
As we conclude the fourth quarter, we are now faced with a new trend for spot freight rates on these high volume lanes to the U.S. and Europe. The strong spot market has weakened significantly since July 2017, and has caused many to believe 2018 and 2019 fixed annual contract rates may be lower than 2017’s numbers.
As we approach the Chinese New Year (February 16th) before the contract season starts, shippers may experience a sudden rate increase, due to space and equipment-related issues. It seems likely that this trend will push 2018 fixed contract rates relatively high in the next year.
With new alliances, several new services have been introduced to the market.
This may trigger some short term decreases in Asia to East Coast spot market prices. As the shipping industry realigns itself with a smaller number of stronger, and larger, steamship lines, shippers also need to be careful and observe the effects of this realignment, and whether carrier concentration will play a strong role in negotiations in pricing for 2018.