We start to see a more consistent demand from China to Europe even if it can’t be labelled as a cargo rush at this stage.
Spot rates are currently in the high 1800’s per HC (Fifo based). They are gently, and pretty consistently rising (see our Upply graph). This level is ensuring an acceptable revenue for carriers on top of floating long term contracted rates negotiated earlier in the year with the BCO segment.
Seeing the existing capacity offered on transport between Asia and Europe, we don’t foresee any potential space crunch in the short-term future. Moreover, some sectors show signs of weakness. The recent press announcements regarding Casino/Monoprix is showing that the retail segment in Europe is under a serious amount of pressure (this is the first year we don’t expect any significative volume growth from China), mostly due to a flat demand, coupled with some alternative Eastern Europe sourcing.
And if carriers announce a massive blank sailings program in the early summer, in an attempt to keep freight rates high, they take the risk of seeing many orders cancelled, ending in a lose/lose scenario for all players involved.
If we take in account the tense political climate with China and the upcoming discussions regarding VLSF use and related extra cost – in October -, plus China’s Silk Road initiative creating a climate prone to transforming existing FOB commercial contracts into CIF, we don’t see room for any significant ocean freight rate inflation in the coming months on this route, and securing current rates for the summer seems like a sensible target and one that can create a consensus.
Historical view on average rates in Port to Port (with THC) estimated by Upply over the past 24 months – June 4th, 2019
Photo credit: Andi_Graf, Pixabay