Drewry: Pacific Contract Rates to Get Further Eroded

Pacific contracts currently being negotiated by many transpacific exporters and importers are to be hit by further fall in rates during the second quarter of 2016, shipping consultancy Drewry expects.

The forecast comes as ocean freight rates for cargo moving under contracts on the major East-West trade routes have already dropped by 20% in the year to February and are on course to see further deep reductions from May, when the new contracts come into effect, Drewry adds.

The 20% cut when compared to the corresponding period from 2015 is indicative of an acceleration of contract rate erosion, even though lower fuel charges accounted for the minority of the reduction in rates.

“Following the price war in the spot container shipping market started in late 2015, the contract market is now also going through a catch-up reduction in prices,” said Philip Damas, Director of Drewry Supply Chain Advisors, speaking at the Global Liner Shipping conference in London earlier today.

“By monitoring contract rates every quarter within the closed user group, companies can determine how well they rank on contract rate levels among their peers and can get increased confidence on actual contract rates which can be secured in today’s very weak market.”

While exporters and importers are enjoying big reductions in their ocean procurement costs this year, Drewry believes that the next trend for shippers could be how to identify and work more with carriers who can maintain reliable service levels despite their revenue pressures and the risk of carrier service instability.

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