Ocean Rate War Could Come at a Price to Shippers

By MarEx 2013-06-05 10:17:00

Shippers might be the beneficiaries of the current price war in the ocean container sector, but that does not mean there are no risks attached, according to Drewry's monthly Sea & Air Shipper Insight. The latest report shows that air freight rates were holding firm in contrast to tumbling ocean rates, with Drewry's East-West Air Freight Price Index, a weighted average of airfreight rates across 21 East-West trades, rising by 1.9 points in April to 98.8.

The carrier financials that have so far been published for the first quarter of 2013 present the same mixed bag of results that typified 2012. Some carriers made a little money but more lost cash, meaning that the industry at large started 2013 in the red.

The second quarter has undoubtedly been worse. Rates have been in free-fall since the start of the year, particularly in the core Asia-Europe westbound trade where Shanghai-to-Rotterdam spot rates as assessed by the World Container Index have lost half their value.

"Carriers will be forced to curb their losses somehow. Service quality might be forsaken as some operators might ask what benefit they get from offering reliable port-to-port services," said Simon Heaney, research manager at Drewry.

Heaney added, "We expect the first step to be further slowing down on ship speeds, which in itself should not lessen reliability but will lengthen transit times even more. After that, if they are still losing cash, the incentive to offer reliable services will be sorely tested."

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