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Long-Term Container Rates May Improve in 2017

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By MarEx 2016-10-27 20:03:40

Analysts with shipping data firm Xeneta believe that while it is too early to predict the containerized freight market for 2017, it is likely that long-term contract rates will be higher than what they were in 2016. 

The third quarter of the year was excellent for carriers, said Xeneta CEO Patrik Berglund, "largely due to Hanjin transforming oversupply to undersupply almost overnight." Average spot rates climbed by almost 50 percent over the span of the quarter. 

“However, looking at today’s data we can already see that prices are trending down somewhat, meaning the Hanjin Effect is history," he added. "There is clearly still an issue of structural overcapacity, albeit more balanced now, and that pushes prices down – with risks for both the carriers and BCOs/shippers."

Berglund notes that while the Hanjin crisis has created volatility in recent months, Q3 spot rates were way up from the lows seen in the first quarter. His firm is hearing that carriers are now reluctant to sign long-term contracts at the same low rates as expiring agreements – a sign that they may expect better rates ahead. The average long-term contract for Asia to Northern Europe has already risen by 170 percent since April, Berglund says. 

"With this in mind shippers probably shouldn’t expect the same low price contracts in 2017 as they secured in 2016," he concludes. “This should wave a red warning flag to any shipper tendering/bidding for new long-term rates in January, the European norm, and next May, the U.S. standard."

The prospect of higher rates will be welcome news to financially stressed carriers. Analysts with Drewry said earlier this week that contract rates fell by 25 percent in 2016, pulled down by weak demand and an oversupply of slot capacity. Drewry echoed Xeneta's caution on forecasting 2017, citing numerous, conflicting factors in the market – including a high number of expected ULCV deliveries, shippers' improving negotiating skills, and historic patterns showing that rate recoveries are much slower than rate declines.