Drewry – freight rates set to increase in 2017

Freight rates are set to go up next year with Hanjin Shipping Line going to receivership representing a low water mark for the industry according to a report by shipping analysts Drewry.

The analysts said that concerns about weak trade and fleet oversupply remain, but Drewry nonetheless predict a return to growth in its latest annual Container Forecaster and Review, 2016-17.

The report predicts that the second half of 2016 is set to be better than the first half but carriers are still set to record a collective operating loss of US$5bn in this financial year. However it could well return to the black with a collective operating profit in the region of $2.5 billion in 2017, and this is down to improving freight rates and higher cargo volumes.

“However, this anticipated recovery needs to be put into perspective,” Drewry said. “While average freight rates are expected to improve next year, this will follow several years of negative returns and will still leave pricing well below the average for 2015.”

The report lays some of the blame for the losses at the door of the shipping companies. Drewry described the commercial behaviour of carriers as ‘unpredictable and counterintuitive’.

One major issue facing container shipping lines is that fuel prices are set to increase, and some of this cost is set to be passed on to customers through a bunker surcharge that links freight rates with oil prices.

Increased scrapping of vessels and a relative lack of new orders are helping ease oversupply.

“But even so, the next two years will still be very challenging on the supply side with annual fleet growth of between 5% and 6% and many more ultra large container vessels (ULCVs) to be delivered,” said Drewry.

This is forcing consolidation upon the industry and carriers who best weather the current prolonged storm are those most likely to emerge stronger in 2019-20.
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