Drewry: Despite overcapacity, freight rates will increase in 2017

Dive Brief:

  • Contract rates along the East-West trade route rose 3% last quarter, the first contract rate increase in 18 months, according to Drewry Shipping Consultants.  
  • Rate information was gathered from 50 retailers and manufacturers who form Drewry's Benchmarking Club and consistently monitor their contract rates.
  • ​The gain was paradoxical, given the ongoing consolidation of lines, but a recent rise in fuel prices and previously unsustainable rates likely caused the increase.

Dive Insight:

Last quarter's rate rise gives credence to the vast number of shippers that fear increased consolidation will increase carrier leverage, particularly in Trans-Pacific routes. As of April 2017, at least 69% of global capacity will be owned by an alliance-affiliated line.

Shippers should take solace in the fact that rates have been at record lows, and the rush to survive the shipping downturn has by no means ended. Rates will rise, but not to all-time highs.

First, the FMC assures alliances cannot use their alliance-capacity as leverage during negotiations, since alliance-affiliated carriers are not permitted to jointly contract with shippers. In addition, smaller shipping lines are still investing in capacity in order to remain competitive.

The recent renegotiated terms of Hyundai Merchant Marine's efforts to join 2M are a case in point: unable to become a member of the 2M Alliance, HMM had to settle for increased capacity by slot exchange. The line also announced its ambitious plan to grow from 2.2% of the global market to 5% within the next 5 years (skepticism abounds).

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Filed Under: Logistics Freight
Top image credit: Bernard Spragg