Executive Briefings

Rates on Major East-West Ocean Cargo Lanes on Rise for First Time in Years

Ocean freight rates for cargoes moving under contracts on major East-West routes have increased for the first time in years, according to Drewry's Benchmarking Club, a closed user group of multinational retailers and manufacturers seeking to more closely monitor their international freight costs.

"In contract negotiations completed mainly for the European trades in the past three months, shippers have had to agree to increases in the base rate on some routes for the first time in years," said Philip Damas, director of Drewry Supply Chain Advisors. "However, rate increases are not uniform and bunker charges for some shippers are decreasing, so it is too early to say whether the trend line has truly changed direction." Furthermore, Damas notes that spot freight rates from Asia to both the U.S. West Coast and Europe have declined sharply in recent months.

The Drewry Benchmarking Club contract rate index, based on trans-Pacific and Asia-Europe contract freight rate data provided confidentially by shippers, increased by 1 percent between November 2014 and February 2015. Last year the Benchmarking Club had seen a continuous fall in contract rates.

Shippers in the U.S. trades are currently negotiating their trans-Pacific contracts. They are facing the prospect of rate increases for intermodal rates and possibly, to a lesser extent, for port-to-port rates.

“Logistics and procurement managers will need to justify and explain to CFOs and to senior management that the cost of moving goods around the world is no longer enjoying year-on-year automatic reductions,” Damas added. “In our consultancy work, we also notice that shippers are reviewing the trade-off between cost and reliability.”

Due to non-disclosure agreements with all shipper members of the Benchmarking Club, Drewry cannot share detailed cost benchmarking intelligence with companies which are not members of the Club. Unlike other indices, the Drewry Benchmarking Club contract rate index measures freight rates under annual contracts rather than spot freight rates.

The Benchmarking Club will provide updated cost indices in June, following the renewal of trans-Pacific freight contracts.

Source: Drewry

"In contract negotiations completed mainly for the European trades in the past three months, shippers have had to agree to increases in the base rate on some routes for the first time in years," said Philip Damas, director of Drewry Supply Chain Advisors. "However, rate increases are not uniform and bunker charges for some shippers are decreasing, so it is too early to say whether the trend line has truly changed direction." Furthermore, Damas notes that spot freight rates from Asia to both the U.S. West Coast and Europe have declined sharply in recent months.

The Drewry Benchmarking Club contract rate index, based on trans-Pacific and Asia-Europe contract freight rate data provided confidentially by shippers, increased by 1 percent between November 2014 and February 2015. Last year the Benchmarking Club had seen a continuous fall in contract rates.

Shippers in the U.S. trades are currently negotiating their trans-Pacific contracts. They are facing the prospect of rate increases for intermodal rates and possibly, to a lesser extent, for port-to-port rates.

“Logistics and procurement managers will need to justify and explain to CFOs and to senior management that the cost of moving goods around the world is no longer enjoying year-on-year automatic reductions,” Damas added. “In our consultancy work, we also notice that shippers are reviewing the trade-off between cost and reliability.”

Due to non-disclosure agreements with all shipper members of the Benchmarking Club, Drewry cannot share detailed cost benchmarking intelligence with companies which are not members of the Club. Unlike other indices, the Drewry Benchmarking Club contract rate index measures freight rates under annual contracts rather than spot freight rates.

The Benchmarking Club will provide updated cost indices in June, following the renewal of trans-Pacific freight contracts.

Source: Drewry