Analysts at maritime consultant Drewry say a recent rally on east-west container rates will quickly recede, but that prices will rise rapidly in H2 if cash-strapped carriers start slashing capacity.

Container freight rates on east-west trades have rallied lately thanks to a pre-Chinese New Year uptick in traffic, but the revival is unlikely to persist – small comfort to those shipping lines currently under intense financial pressure.

IFW’s sister publication, Lloyd’s List, reports today that South Korea’s Hanjin Shipping has just posted $437 million of operating losses for 2011.

Drewry, however, is warning shippers that tying carriers to today’s low rates, could cause problems later in the year.

“Shippers should beware of locking carriers into low freight rates today that may hinder surety of supply in the future,” said the analyst.

“Drewry expects freight rates to rise sharply in the second half of the year as cash-burn forces carriers to slash capacity.

“A repeat of 2010, when freight rates rose sharply and space availability was highly restricted, seems inevitable. Drewry strongly recommends shippers look at the benefits of index-linked contracts to mitigate these dangers.”

Spot rates on the two main east-west trades, the transpacific and Asia-Europe, have shown some positive spirit of late.

The Hong Kong-Los Angeles container rate benchmark, for example, leaped 28% in the first week of the year, reaching $1,832 per feu – a level it has maintained through much of January.

Similarly, Asia-Europe rates have also shown signs of life. The World Container Index (WCI) benchmark rate between Shanghai and Rotterdam (see graph, left) soared 41% in the first two weeks of January to $1,335 per feu.

The annual rush across much of Asia to shed inventory in advance of the lunar new year factory closures, traditionally fills ships to bursting. This causes most carriers to roll containers, while load factors in excess of 100% encourage lines to hike rates.

Drewry Supply Chain Advisors expects east-west freight rates to retreat back to December levels once the pre-Chinese New Year rush recedes, unless carriers take action to remove surplus capacity from the trade.

It is advising shippers to wait a few weeks before commencing transpacific contract negotiations with carriers, most of which run from May to April.


Source : http://www.ifw-net.com