Last week, we alerted Supply Chain Matters readers to a warning from the European Shippers Council regarding very limited container shipping slots and corresponding spiking container shipping rates for exports from Europe to Asia. This week, Drewry Advisors released its latest update for its World Container Index, providing reinforcing quantitative evidence that container rates are spiking. The overall composite of container freight rates on 8 major trade routes is now trending up 11.6 percent this week to an average of $1523.86 per container. Drewry reports that this same index is now up 75 percent from the same period in 2016. 
As noted in our prior blog, the primary reason provided by ocean container carriers for capacity constraints and spiking rates was the repositioning of ships among various new shipping line alliances that started various network services this month. A review of the detailed shipping routes analyzed by this index reflects a 62 percent weekly, and a whopping 151 percent annual spike in container rates for the Rotterdam to Shanghai routing. However, the same annualized 151 percent rate hike is reflected on the all-important Shanghai to Rotterdam routing. The Shanghai to Los Angeles routing, another high-volume route reflects a 63 percent annualized rate increase. On the other hand, other routing such as New York to Rotterdam reflect a 6 percent annualized decrease.
In our prior update, we questioned whether container shipping lines, or their respective alliance networks, had done adequate planning for this month’s new network models. Based on this latest data, we now lean toward a different perspective, namely that alliance networks may well have exercised concerted planning regarding capacity and rate structures related to specific geographic routes, including those that are most heavily traveled.
The takeaway remains- industry supply chains, reliant on spot market rates, are going to feel the impact of these double-digit rate increases. Transportation procurement teams will have to do their homework regarding rate trending and shipping alliance contracts.
Shipping lines can argue that the current rates reflect historic rates in times where industry capacity aligned with overall global shipping demand. The visualization of Drewry’s World Container Index dating back to April 2015, reflects discernable zig-zag rate patterns of constant spikes and ebbs. The lowest rates were the high six-hundreds and the highest rates exceeded $1700 at the start of this year. On the one-hand, planning or compensating for such a wide variation in spot-rates may lend itself to a preference for contract rates, which only high-volume shippers or brokers can take advantage of. On the other, such a wide disparity makes transportation contract renewal or re-negotiation a difficult exercise. Added to this dynamic is a shipping industry track record of inconsistent schedule reliability and slow-steaming methods that optimize costs for carriers vs. shippers.
We continue to question how much industry shippers and global maritime regulators are willing to tolerate regarding consolidation of capacity under multi-carrier alliance networks, before the economic and supply chain predictability interests of shippers are considered. Global regulators are likely beginning to sense such a groundswell of shipper and stakeholder concerns on new ocean shipping alliances impacts to service reliability, predictability, and non-market-driven rate structures.
That, unfortunately, will not alleviate the current impacts to transportation budgets.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Hello Everyone,
Citing informed sources, The Wall Street Journal reports that the U.S. Department of Justice’s investigation of the world’s top shipping companies is now examining alleged price collusion against tug boat operators and other service providers to ocean container alliances. According to the report, the probe could complicate plans to move cargo to the U.S. as part of the now operating three global shipping alliances.
Readers may recall that CEO’s of the major ocean container shipping lines were recently served subpoenas at a U.S. conference held on the U.S. West Coast.
The report includes a quote from William Doyle, an Federal Maritime Commissioner:
“Some of the international ocean carriers are attempting to gain limited antitrust immunity to collectively negotiate contracts with U.S. domestic suppliers and service providers such as tugs, barges and equipment lessors, It’s simply unfair to the domestic service providers, and an overreach by the carriers.”
Representative Pete DeFazio (D. Oregon) indicated to the WSJ::
Alliances “controlled substantially by foreign interests” raise national security and competitiveness concerns for the U.S., and Congress “should visit the antitrust immunity that’s been granted under law, limited as it may be.”
This report further indicates that some members of Congress may consider legislation that could largely remove the alliances’ antitrust immunity, making it difficult for the container operators to sail as part of groups in U.S. waters under their current regulatory structure.
Obviously, this is a dynamic situation which bears continued monitoring.
Bob Ferrari