Will Container Rates Ever Peak?

Anyone associated with the shipping industry knows what a landmark year it’s been for container rates. According to Drewry’s World Container Index (WCI) issued on September 9th, the average composite index of the WCI year-to-date is 309% higher than it was during the same week last year—which is the 21st consecutive week in which increases have occurred.

As nervous shippers eye those stomach-wrenching graphics that demonstrate the continual and historic rise in prices, many are wondering whether the gruesome uphill climb of that squiggly line will ever reach a peak.

A July 5th tweet from Drewry predicted it may be awhile, noting that “the shipping sector sees no relief on the horizon before 2022.”

This trend was also forecast in Drewry’s Container Census & Leasing Annual Report 2021/22, released in July.

Here, we’ll take a bird’s eye view of that report and others; what experts predict for the peak season ahead; present status and future predictions; and whether recent news may offer a glimmer of hope on the container-rate horizon.

Moderating Prices Ahead?

In a press release about the report, Drewry noted that prices of dry freight shipping containers over the past year have doubled to reach all-time highs: “…by 2Q21 40ft high cube containers breached the $6,500 threshold, more than doubling over the year, to reach their highest value since Drewry started monitoring container equipment prices back as far as 1998.”

The good news is that Drewry predicts prices will eventually level off.

Quoted in the press release, John Fossey, Head of Container Equipment & Leasing Research at Drewry, described various factors playing a role: “Pricing has been driven by soaring demand for newbuild containers as shipping lines and lessors have been seeking to rebuild fleets in the face of chronic equipment availability due to widening disruption across the container supply chain. But also increased input costs, particularly for Corten steel and flooring materials have also played a part. We expect dry box prices to peak in the third quarter and to soften thereafter, easing further over subsequent years as trade normalises.”

The following video provides a snapshot of the report.

Grim Peak Season Prospects

For many, that leveling off period can’t come soon enough. On September 1st, the Global Shippers’ Forum (GSF) and MDS Transmodal issued their latest Container Shipping Market Quarterly Review for Q2.

The report included findings related to eight key performance indicators (KPIs), including one that reflects carrier costs and revenues: “Unit operating costs for ships ($/teu) have barely moved over the past 18 months despite stronger charter rates and a recovered oil price. Earnings per container moved have doubled over the same period for no discernible increase in costs.”

Quoted in a CLECAT summary of the report, Director of GSF James Hookham pointed out that shippers are facing “a meltdown of the container shipping market, with rates in the stratosphere, slots up for auction and service performance in the trash. The prospects for the coming peak season look grim.”

Hookham also noted that this isn’t good news for “the solvency of thousands of SMEs” that are counting on the peak season ahead to help them rebound from the impacts of the pandemic.

Or, as Container News summarized in its overview of the report, “Importers and exporters are facing a rapidly disintegrating container shipping market as deployed capacity fails to keep pace with returning consumer and business demand and shipping rates escalate beyond reach for many small to medium enterprises (SMEs).”

Present Status, Future Predictions

As noted previously, rising rate trends continue—as reflected in Drewry’s weekly World Container Index (WCI) released on September 9th. Drewry notes that “The average composite index of the WCI, assessed by Drewry for year-to-date, is $6,695 per 40ft container, which is $4,367 higher than the five-year average of $2,327 per 40ft container.”

All spot rates for the eight major East-West trade routes assessed by Drewry increased, with the exception of Rotterdam to Shanghai, which decreased by 1%. Drewry predicts that rates will “increase further in the coming week but steadily.”

In particular, spot China-to-California rates have reached “gravity-defying levels,” as noted in a September 9th article from American Shipper. Noting the various dynamics that may be affecting the current surge in container demand—which impacts rates—senior editor Greg Miller cited several experts who predict a potential slow-down in volume ahead.

Quoted in the article, Lars Jensen, CEO of SeaIntelligence Consulting said, “I find it difficult to see this situation as a permanent stable reversal given the underlying economic issues from the pandemic.” As a result, he predicted “another dip for container-shipping volumes” before “getting back on a more permanent upturn.”

Miller wrote that FreightWaves Maritime Expert Henry Byers thinks volumes have already peaked, predicting that “From here, volume will remain on a relatively stable decline through the end of year.”

Hope on the Horizon?

Recently, a little glimmer of hope may have appeared on the horizon when carrier CMA CGM announced it “will cease all increases in spot rates worldwide through Feb. 1, effectively immediately.”

In his analysis of the move, Miller included a bit of skepticism: “At first blush, the decision sounds like a game changer. But even if other carriers make similar announcements, how much of this is genuine mercy toward customers that will have bottom-line effects related to spot capacity that is still actually available — and how much is public relations?”

Miller also pointed out a number of additional dynamics that are involved, including the fact that capping spot rates doesn’t mean that a plethora of other charges aren’t still in the mix.

“Capping rates at record-high levels is better for cargo shippers than not capping rates, but even so, shipping costs will remain at unprecedented highs and all-in costs don’t just include the base rate that is being capped. They also include, to an unprecedented degree, additional premium fees and other charges,” Miller wrote.

As far as wondering if other carriers would do the same, Container News recently reported that Hapag-Lloyd decided to follow suit.

The week prior, the carrier announced general rate increases (GRI) to East Africa and from Mexico.

On September 14th, Carrier News reported that “CMA CGM has announced several freight rate changes, before its decision to suspend all spot rate increases until 1 February.”

So, time will tell how this glimmer of hope on the horizon ultimately plays out and whether shippers actually experience the relief they so desperately need.

In the meantime, CLN Worldwide would love to help your company deal with all the ups and downs of the shipping world.

Our experts are here to help, so please contact us today.

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