Cutting Costs Is Top Goal for Container Industry as Rates Continue Falling
By: Maritime Executive July 08, 2014
Drewry's 2Q14 Container Forecaster highlights that there is a widening gap between the positive financials of the few carriers really focused on cutting costs and the rest of the top 20 lines, as they battle with the pressure of falling freight rates.
Drewry forecasts that once again, average freight rates will be lower than in the previous year. Drewry estimates that on the headhaul trans-Pacific trade alone, carriers have given away in the region of $1.25bn in annual revenue via the lower annual contracts they signed with beneficial cargo owner clients in May. They also signed new annual contracts on the Asia-Europe trade earlier in the year at levels of around $150-$200 per 40-foot container, lower than in 2013. On the positive side, they may have secured base cargoes to fill their ships at a low price. But this puts more pressure on carriers to try and recover revenue from the spot market. Drewry believes that volatility in the spot market will remain high this year.
While supply and demand remain key drivers of freight rates across all trades, those carriers cutting their costs are also better equipped to offer lower rates and in real terms they are in fact passing back these benefits to their customers. Industry unit costs per TEU are forecast to decline by 2.5 percent this year and strategies such as slow steaming, re-designing networks and buying bunkers in Russia are crucial to this, but carriers will struggle to make a profit since we are also forecasting unit revenues to decline by a similar amount.