GENEVA — The downward pressure on freight rates for containerized cargo in major shipping lanes that have witnessed double-digit declines in recent months, is expected to continue, driven by the slowdown of growth in China and in global trade flows, as well as the continued entry of new vessels in a saturated market, United Nations experts said Wednesday.
“In the last few months, all the rates have gone down further,” said Jan Hoffmann, chief for trade facilitation at the U.N. Conference on Trade and Development, and principal author of the agency’s “Review of Maritime Transport 2015.” “It’s really bad news for the carriers, good news for the shippers.”
Hoffmann acknowledged the slowdown in China and the imbalances this has triggered in the global freight market contributed to the slide.
Shanghai-U.S. West Coast rates that in 2014 averaged $1,970 for shipping forty-foot equivalent units across the Pacific, in April had fallen to $1,714 per FTU, and in July further down to $1,321 per FTU, according to estimates from Clarkson’s Container Intelligence, cited by Hoffmann.
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The oversupply of ships, he said in an interview, is also adding to the drop in freight rates and adding to the operational problems for carriers.
“Globally, there is still this tremendous overcapacity,” Hoffman said. “Our estimates clearly suggested that globally the supply of ships, including container ships, continues to outgrow demand, so the downward pressure remains. But I can’t envisage even lower rates because they are so bad for the carriers.”
His forecast was that rates “are very low and may have bottomed out.” But he noted that if they go further down, “ships would tie up,” as they would not cover operational costs.
Hoffmann also stressed that costs have gone down for carriers.
“Interest rates are relatively low, so capital costs are low, charters are low, shipbuilding costs are low, fuel is low, so yes, the cost basis for the carriers is also lower now,” he said.
Asked if certain cargos are more sensitive to rate changes than others, like textiles and apparel, he responded: “For textiles and apparel, speed is much more important, so if there is a change in the freight rate it does not have a big impact, as it does for bulk commodities like iron ore where the freight cost can be up to 30 percent of the value.”
For consumer goods like apparel, he said, “freight cost per shirt is less relevant. There it matters more to get the goods quickly through customs, to have reliable services.”
In 2014, the report said, seaborne trade, which accounts for about 80 percent of world merchandise trade shipments, increased 3.4 percent to 9.84 billion tons from 9.51 billion tons the year before, and included an above-average 5.6 percent increase in containerized volumes to 1.63 billion tons.
But ton-mile units that offer a more accurate measure of demand for shipping services and tonnage increased 4.4 percent to an estimated 52,572 billion ton-miles. For this year, the UNCTAD report projects ton-miles to grow 3.1 percent to 54,237 billion.