Drewry: Rate drop could trigger demand for new contract negotiations

Container carriers on Asia-Europe could soon be facing demands from customers who want their annual contracts renegotiated, contracts that were signed just a few months ago at rates much higher than the current level, says Drewry.

Spot rates between the Far East and Europe have now gotten so low that carriers risk facing demands from their customers who want their annual contracts renegotiated. These contracts were signed a few months ago, at a much higher rate level than what the market is seeing right now, says Martin Dixon, Research Manager, Freight Rate Benchmarking, at analyst agency Drewry.

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"At current spot rate levels carriers are losing money. Worse still, unless there is some improvement there is a danger that shippers who agreed annual contracts commencing in January may start asking for their contract rates to be reviewed downwards," Martin Dixon tells ShippingWatch.

Drewry: The truth shipowners don't want to hear

He also stresses Drewry's latest analyses, which show that the only solution for the carriers is to pull ships from the major routes between Asia and Europe, if the rates are to have any chance at all to escape the current unsustainable level experienced by the market right now. At least two strings will have to be pulled completely from the traffic, says Drewry.

Photo: Maersk Line
Photo: Maersk Line

"However, there is no sign of this happening as carriers wait for someone else to make the first move. We expect carriers to attempt to hard line the July general rate increase in a desperate attempt to force up spot rates, despite weak market fundamentals," says Martin Dixon, adding:

"But it will only take one carrier to break ranks for rates to fall again so we do not think that any such recovery will be sustained."

Rates on Asia-Europe continue free fall

Basically, the rates are still falling due to decreasing freight volumes, weak demand expectations, and, especially, because of the steady flow of increasingly bigger ships that are being delivered during the next months. According to Drewrey, by the end of April there were still 31 major container ships awaiting delivery this year.

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