Ocean freight rates for cargo moving under contracts on the major East-West routes have seen a sharp reduction since the beginning of 2015, according to Drewry’s Benchmarking Club, a closed user group of multinational retailers and manufacturers who closely monitor their contract freight rates.
The Drewry Benchmarking Club contract rate index, based on Trans Pacific and Asia-Europe contract freight rate data provided confidentially by shippers, declined by 7% between May and August, 2015, the steepest fall since the Benchmarking Club was established in March, 2014.
The fall in contract rates has been driven by a combination of lower fuel costs, excess vessel capacity and intensive competition between shipping lines. Bunker costs have fallen since Q4, 2014 and this has contributed to a reduction in contract rates negotiated since Q1, 2015, which has accelerated in recent months.
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Prior to this there was some strengthening in Asia-Europe contract rates agreed at the end of 2014 when market conditions were stronger. However, as the spot market has weakened and bunker surcharges fallen, contract rate levels have since deteriorated.
Some of the fall in contract rates was the result of carriers granting shippers temporary reductions in contract rates to secure cargo. As a result, the Drewry Benchmarking Club contract rate index declined 5% in the 12 months to August 2015.
Philip Damas, Director of Drewry Supply Chain Advisors, said: “We expect contract rates to fall further through the remainder of this year, given falling fuel costs and continued overcapacity in the market. Given the volatility of rates in both the spot and the contract market, shippers are increasingly using Drewry to help them forecast and budget their 2016 freight costs.”
Unlike other indices, the Drewry Benchmarking Club contract rate index measures freight rates under annual contracts rather than spot freight rates.
