Drewry: Carriers Could See Higher 2017 Contract Rates

The recent rally in Asia to Europe spot market rates has improved carriers’ chances of securing higher 2017 contract rates, according to shipping consultancy Drewry.

It has been another typically volatile year as far as the spot freight rate market is concerned with the weekly ups and downs once again being most obvious in the high-volume westbound Asia to Europe trade, Drewry said, adding that 2016 has thus far played out very much like 2015 with very little difference in regards to the average weekly rate, standard deviation or highs and lows.

However, this year the key aspect of timing was different as the average Asia-Europe spot rate was approximately 35% higher in the third quarter 2016 than in the same period a year ago.

Drewry noted that this is important because spot market rates serve as the starting point for Beneficial Cargo Owner (BCO) contract negotiations, which for the Asia-Europe trade “will be starting very soon.” While some early-bird contracts start from November or December, most Asia to Europe contract rates run for 12 months from January 1.

“The recent spike in westbound rates, which was somewhat inflated by the Hanjin situation, is a good omen for carriers heading into the contract season. At the same point last year spot rates were down by 55% year-on-year, which contributed to a 25% reduction in contract rates at the start of 2016,” Drewry said.

As a rule, contract rates should be more competitive than spot rates because they involve higher volumes over a longer period.

With the spot market finally emerging from its dark recesses Drewry believes that shippers will have to budget for increased contract costs in 2017.

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