ASIA-EUROPE shippers reaching the end of their annual
contracts should prepare their budgets for steep and unavoidable rate increases
in 2021, according to Xeneta, a freight rate benchmarking and
market analytics platform.
With the surging spot market unlikely to weaken before
Chinese New Year in mid-February,rates from China to North Europe have risen
steadily since hitting a low point in the second quarter.
This
divergence will put strong upward pressure on contract price levels, said Danny
Smolders, managing director of global sales at Hapag-Lloyd.
"It
is too early to put a percentage on the contract rate increases on Asia-Europe
for 2021, but looking at the low long-term rates we have so far, I can say that
the contract rates will be substantially higher," Mr Smolders said.
Alan
Murphy, CEO Sea-Intelligence Maritime Analysis, noted the high correlation between spot
and long-term rates in ocean freight. "The underlying hypothesis is that
freight rate changes tend to happen first in the more volatile spot markets and
subsequently influence the contract rate levels with a time delay as new
contracts are negotiated with an eye to developments in the spot market,"
he said.
By
mid-December, the soaring spot market saw China-North Europe rates rising to
levels more than three times the level at the same time last year and
increasing by 183 per cent on China-Med routes year over year.
To put
that in context, the average SCFI rate from China to North Europe in 2019 was
$764 per TEU, and from January through November 2020, the average spot price
was $979 per TEU.
The rates paid by shippers will be going up, said Peter
Sand, chief shipping analyst for BIMCO, who outlined the shipper predicament in
a late November market update.
"If the alternative to signing a new, higher priced
contract deal is the spot market, which may be two or three times that price,
you need to get that higher contract rate," Mr Sand said. "Remaining
in the spot market will be so much more expensive."
Rising rates have been accompanied by deteriorating service
levels, with Sea-Intelligence reporting that global ocean carrier schedule
reliability fell to a record low in October of 52.4 per cent. On-time
performance on the Asia-North Europe trade fell by 15 percentage points month
over month to 54.4 per cent, while Asia-Mediterranean reliability declined 16.3
percentage points sequentially to 52.2 per cent.
Source : HKSG.
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