Shipping rates show signs of recovery ahead of trans-Pacific contract renewal

[Photo provided by HMM]

International shipping freight rates, which had fallen below break-even levels, have recently shown signs of recovery although they remain at only one-fifth of the peak levels seen early last year.

According to shipping industry sources on Wednesday, the Shanghai Containerized Freight Index, which is used to measure the average weekly spot rates from Shanghai on the major trades, rose for a second consecutive week to 956.93 on April 7. This marks the first time the index has risen for two consecutive weeks since June last year.

The industry typically sees 1,000 on the index as the break-even point and a reading below that level means that shipping companies operate at a loss.

The SCFI surpassed the 5,000 mark in January last year but quickly receded and fell below 1,000 in February. On March 10, it even fell to 906.55, but in just over a month since then, it has rebounded above 950.

The industry is paying attention to the fact that the shipping rate to the U.S. East Coast from Asia rose by $137 per 40-foot container to $2,147 earlier this month compared with the previous week. This is the first time the levy on the route rose in a year since April last year. The container freight for the U.S. West Coast also rose by $144 to $1,292. The shipping industry attributes the increase to upcoming annual negotiations for long-term shipping contracts on the trans-Pacific route.

Spot freight rates on U.S. routes have recently fallen to about 80 percent of their peak levels last year. Spot rates affect the determination of long-term contract rates. Sources said shipping companies may try to hike rates across the board to recover from a sharp drop in spot freight rates as negotiations for their contracts on North American routes are approaching.

However, the outlook for shipping rates remains bleak. The supply of new container ships is expected to grow by roughly 8 percent over the next two years.