Executive Briefings

Uncertainty Impacts Shippers with Volatility in General Rate Increases

A series of general rate increases on the Asia-North Europe trade have gone into effect as container shipping lines once again attempt to force freight rates up to break-even levels, amid warnings from shippers and analysts that pricing volatility is set to continue - and possibly worsen.

Industry-wide benchmarks are in short supply due to the relative infancy of container rate indices. The Shanghai Containerized Freight Index first launched in May 2009, when Asia-North Europe spot rates were at a rock bottom levels below the $500 per TEU mark. And while the current decline has yet to see the indexed rate go as low as that, SeaIntel partner Alan Murphy said that over the past three months it has dropped more precipitously than ever before.

"We are now moving in and getting close to the bottom of 2009, and it's important to note that this decline is the fastest  - it's gone very, very fast, especially over the last three months," he said. "The clear trend on rates is that volatility is on the increase. We have seen rates shoot up and rates tear down; rates shoot up again and rates tear down at a much faster pace than before."

He also argued that measuring the success of GRIs should be based on the point of their announcement rather than at the time of their implementation, and pointed to the March 1 GRI earlier this year which was $700 per TEU. At the time the SCFI actually recorded an increase of $424 per TEU, but compared with the time of the GRI announcement - which took place in January - rates increased by only $97 per TEU. And since March 1 the SCFI Asia-North Europe rate has declined by $909 per TEU.

"If I announce now at the end of June my intention to raise rates by $500 at the beginning of August, and in the meantime rates drop by $500, come August I raise rates by $500 so I haven't actually got anywhere - the GRI is the standard tool that carriers have to raise prices, and it's simply broken now," he said.

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Industry-wide benchmarks are in short supply due to the relative infancy of container rate indices. The Shanghai Containerized Freight Index first launched in May 2009, when Asia-North Europe spot rates were at a rock bottom levels below the $500 per TEU mark. And while the current decline has yet to see the indexed rate go as low as that, SeaIntel partner Alan Murphy said that over the past three months it has dropped more precipitously than ever before.

"We are now moving in and getting close to the bottom of 2009, and it's important to note that this decline is the fastest  - it's gone very, very fast, especially over the last three months," he said. "The clear trend on rates is that volatility is on the increase. We have seen rates shoot up and rates tear down; rates shoot up again and rates tear down at a much faster pace than before."

He also argued that measuring the success of GRIs should be based on the point of their announcement rather than at the time of their implementation, and pointed to the March 1 GRI earlier this year which was $700 per TEU. At the time the SCFI actually recorded an increase of $424 per TEU, but compared with the time of the GRI announcement - which took place in January - rates increased by only $97 per TEU. And since March 1 the SCFI Asia-North Europe rate has declined by $909 per TEU.

"If I announce now at the end of June my intention to raise rates by $500 at the beginning of August, and in the meantime rates drop by $500, come August I raise rates by $500 so I haven't actually got anywhere - the GRI is the standard tool that carriers have to raise prices, and it's simply broken now," he said.

Read Full Article