Ocean freight rates for cargo moving under contracts on the major East-West trade routes saw a reversal of trend in 4Q 2016, according to Drewry’s Benchmarking Club, a closed user group of 50 multinational retailers and manufacturers who closely monitor their contract freight rates.
The Drewry Benchmarking Club Contract Rate Index, based on average Transpacific and Asia-Europe contract freight rate data provided confidentially by shippers, increased by 3% in the latest quarter, after having fallen for more than 6 consecutive quarters.
“2017 will be the first year of increasing contract rates since 2010 and this could come as a shock to some logistics managers who had got used to deflationary international transportation costs year after year,” said Philip Damas, head of the logistics practice of Drewry.
Drewry notes the paradox that rates will increase despite shipping over-capacity continuing to be severe in 2017. But factors such as the higher prices of fuel, the previously unsustainable level of rates and the Hanjin bankruptcy are now weighing heavily on pricing.
Some of Drewry’s BCO customers are concerned that the rapid consolidation of the ocean carrier industry – which has moved from the “top 20 global carriers” to a smaller group of “top 14 carriers” – will substantially change the bargaining power of carriers.
However, Drewry’s e-Sourcing Ocean Freight SolutionTM and benchmarking tools have enabled exporters and importers to mitigate increasing ocean transportation costs and carrier financial risks.
Many European importers have received annual carrier bids for contracts effective from January, with higher fixed rates than in 2016.
“We expect that ocean contract negotiations in the next few months – including the transpacific ones in March-April – will be tougher for shippers and also more complex, so exporters and importers need to be equipped with the best data, sourcing technology, practices and market insight,” Damas said. Some of the challenges for exporters and importers will include increased carrier instability, the uncertainty of future alliance services and the impact of big ships on port performance, to name a few.