Brace for even higher freight rates: CIMB

Container freight rates are climbing and will reach mid-year peaks before crashing in 2H11.

From Asia to Europe, freight rates have gone up by up to 18%, a marked uptick that CIMB believes will persist for the first half of the year now that market leader Maersk seems determined to stick to its rate increases.

Here's more from CIMB:

Maersk made two important announcements recently: 1) that it is planning a US$400/teu increase on AE from April 1, and 2) that it continued to expect its liner arm to register losses in 2012. While seemingly contradictory, we think that Maersk hit the nail on the head.

Container freight rates should rebound strongly in 1H11, but rates will peak in mid-2012 and decline in 2H11 as competition returns. Freight rate momentum on Asia-Europe seemed quite powerful last week, with rates rising 16-18%. Maersk has announced a US$400/teu rate increase from April 1, in addition to the US$775/teu increase from March 1. Big brother’s commitment to rate restoration means that half the battle is won.

Furthermore, NOL said last week that its customers are now prepared to accept the rate increases. However, the industry’s self-destructive tendencies are reflected in Maersk’s cautious guidance for 2012. We also notice that Middle East and Australia trades have so far not benefited from the recent rise in the spot AE and TP rates, suggesting that the impact from cascading is still a major issue.

A host of carriers including Maersk, NOL, CSAV and HMM have reported poor 4Q numbers, providing each carrier with a strong impetus to carry on with its freight restoration programme.

Maersk has announced a US$400/teu rate increase from April 1, in addition to the US$775/teu increase from March 1, which took the market by surprise. The big brother also reaffirmed its commitment to using more slow steaming and may reactivate lay-ups in order to “improve market balance”. With the market leader now determined to see through rate restoration, other carriers will take its cue and follow with more announcements of the same. We expect the AE trade to experience fairly dramatic rate increases until mid-2012.

Bulk rates rose last week in relatively lacklustre volumes, while tanker rates corrected due to excess supply. The issue with bulk shipping remains with China’s growth slowdown, while tanker uncertainties revolve around the potential disruption to the oil trade in the Middle East.