[160713.EN.SEA] Rates Determined By Supply And Demand, Not Carrier Collusion: Drewry

OCEAN freight rates will hinge on the "market fundamentals of demand and supply" in long term, according to the Drewry Container Insight report.

Suffering from drastic declines in freight rates, particularly in Asia-Europe routes, in the second quarter, carriers implemented a new round of general rate increases (GRI) from July 1.

The World Container Index rose 165 per cent on July 4, indicating that spot rates from Shanghai to Rotterdam were up 165 per cent to US$2,622 per FEU on July 4, according to Drewry. Meanwhile, The Shanghai Containerised Freight Index (SCFI) Asia-Europe spot rates increased 174 per cent to $1,409 per TEU on June 28.

As most top carriers raised rates at the same time to the same level, shippers in Europe have started to doubt whether there is "price coordination" or "price signaling" between carriers.

But so far European Commission (EC) regulators have not openly expressed concerns about the possibility of price fixing on Asia-Europe trade lane, said Drewry, believing instead that rates are determined by demand and supply factor.

"Ocean carriers' poor profitability since the third quarter of 2012 also points to free market behavior," said the report.

"Most carriers' financial accounts have been full of red ink, with barely enough profit made to pay interest on loans, let alone keep shareholders happy, over which many shippers are sympathetic due to the implications on service quality."

Indeed, the Shanghai Containerised Freight Index Asia-Europe show spot rates experiencing a drop of 4.5 per cent or $63 per TEU to $1,346 per TEU on July 5, one week after the dramatic 174 per cent increase. This points out that if the demand remains soft, rate increases are harder to sustain.

Yet some carriers have released plans to impose a new round of rate increases effective August 1. Hong Kong's OOCL has announced it will raise Asia-Europe westbound rate by $525 per TEU from August 1 and South Korea's Hanjin Shipping has also made similar announcement that it will increase rates on westbound services from Asia to north Europe and the Mediterranean by $500 per TEU on August 1.

The EC has met shippers in Europe to see whether they have negotiated the rates with the carriers, said Drewry, implying that the EC might look into the issue of price coordination or signalling and recommend actions for remedy.

Source : HKSG.