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Shipping companies have been using the recent General Rate Increase (GRI) to raise spot freight rates for Asia-Europe trade, but due to weak demand, industry experts doubt the sustainability of the rate hike. The carriers launched a GRI on April 15th, with plans to implement another increase on May 1st. However, Linerlytica reported on Monday that the May 1st GRI has been postponed until mid-May because the freight volume cannot support the additional fees.
Recently, shipping consultancy firm Drewry stated that the recent increase in container spot rates is temporary and that the company still does not believe that rates have hit rock bottom. Drewry predicts that shipping companies will experience losses, and senior manager Simon Heaney said, "I think shipping companies have done a good job of intimidating shippers. If the GRI fee increase is not successful or only partially successful, there will be more capacity reductions."
In fact, some UK shippers have already learned from carrier representatives that freight rates for Asia-Europe trade will further increase in the coming weeks, and there have been delays in cargo, especially heavy containers.
Regarding demand, Simon Heaney said that consumer spending in Europe and North America appears to be largely restricted this year due to high inflation and interest rates. He explained that other regions will have "different adjustment timetables" in their respective cycles. He did say that although the data is currently weak, he expects the traditional peak season in late summer to see an increase in transaction volume, but "compared to the same period last year, the market looks quite weak."
Drewry"s outlook on freight rates will make liner shipping companies and their shareholders uneasy. "We currently expect that the global average freight rate, including spot and contract rates for all trade routes, will fall by 60% this year. In our first forecast for 2024 freight rates, we expect prices to fall again, with the largest adjustment being for East-West trade routes, where prices are expected to fall by 24%," the analyst predicted.
The impact of the sharp drop in rates on shipping company profits will be "huge," according to the analyst. After achieving record profits in the past two years, Drewry expects the shipping industry"s pre-tax profit to reach $16.5 billion this year due to a large number of lucrative contracts expiring. However, for 2024, the company has modeled cumulative losses for shipping companies, which are expected to reach $10 million.
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