Container freight rates capped for now

Firms bracing for more spot rate increases can relax as the next big round of hikes will most likely be pushed to next spring.

On the flip side, freight rates will not dip back to their record lows, according to CIMB, based on their conference call with Drewry consultants. The more plausible scenario is a volatile decrease-and-increase pattern over the coming months as shipping firms try to at least break even while dealing with an overcapacity market.

Here's more from CIMB:

It will be difficult to implement more spot rate increases on the Europe trades and the US peak season may last just a few weeks. Drewry thinks that the industry as a whole would consider breaking even in 2012 as a good outcome. 

Drewry believed that we are past the peak freight rates for the year and that, with the exception of the summer peak season, the next big push in rate increases will happen only next spring. There is a strong likelihood of a reasonably good peak season for the US trades but there is unlikely to be a peak season for European trades which are very weak.

The US peak season could last 4-6 weeks from July. About half of the proposed US$600/feu PSS could come through but freight rates should trend lower again after that.

Nevertheless, Drewry does not expect freight rates to go back to their 2011 lows as Maersk has abandoned its market share game. Also, many of BCO contracts on US and Europe trades may have been signed at loss-making levels, which means that carriers are still going to need a strong spot market to make up for those poor contracts. However, it could be a case of one step forward and two steps back from here on, i.e. a partially successful GRI, followed by spot rate declines because capacity deployment will resume for the summer.

With the industry still on track to receive a lot of new ships and reluctant to lay up the larger vessels, the structural overcapacity will keep rates volatile.