Monday, 16 September 2019
Are International Freight Rates Bottoming Out?
Austmine Limited
/ Categories: Press Releases

Are International Freight Rates Bottoming Out?

GLOBAL FREIGHT rates – while still at loss making levels for many carriers – have shown signs of bottoming out in recent months, with both the Shanghai Containerised Freight Index and Baltic Dry Index recovering from the record lows of mid-March.

We continue to note a wide variance in quotes received for both Ocean and Air Freight consignments on the CargoHound platform, as carriers and freight forwarders adjust to the changing dynamics at play.

Part of this “bottoming out” is no doubt due to the withdrawal of services on some trade lanes and an idling of shipping capacity. Whilst this is not necessarily a “tightening” of shipping supply, it is at least a slowing of the rapid growth we have seen in recent years as more and more megaships have been deployed.

Idling Capacity: An April 4 survey by Alphaliner showed 325 idle container ships at anchor – equating to 1.48 million TEU, and 7.4% of the global fleet.  This included 109 vessels of 5,100 TEU and over. 

Meanwhile, there are reports that 41 container vessels totalling 143,000 TEU have already been sold for demolition so far in 2016 – compared to 85 (187,000 TEU) scrapped in total during 2015.

Air Freight Oversupply: This phenomenon is not unique to the Ocean Freight sector.  Airfreight is facing similar “overcapacity” issues due to the increased “belly capacity” in passenger planes as worldwide passenger traffic hits 5 year highs.  The strong demand for passenger carriage saw aircraft orders hit record levels in 2014.

At the same time, Airports Council International (ACI) traffic data for February shows international airfreight traffic declined 5.1% year-on-year with the slackening demand hitting “freight only” airlines harder as freight yields declined. We have heard reports of some of these “freight only” air carriers reducing services.

One interesting dynamic is that the cheapening of airfreight rates is generating some shift in demand from less than container load (LCL) ocean freight shippers to move their freight to faster air transport.

Macro Conditions: Ultimately, low prices tend to cure low prices in any market.  But even with an idling of capacity, and reduction in services - a sustained rally in shipping rates may be unlikely until macro-economic confidence and global trade volumes improve and hence “freight demand” picks up as inventories are rebuilt.  

The bottom line is that importers and exporters should be getting quotes from multiple freight service providers to ensure the continued volatility is not negatively impacting their costs.

As the "Uber" of international freight CargoHound allows users to quickly compare multiple quotes from "rated" providers and chose the service that best fits their requirements and budget.

AUTHOR:

Pete Johnson, Co-Founder of CargoHound

 

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