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Wild Swings in Freight Rates the New Normal Amid Uneven Recovery

Wild Swings in Freight Rates the New Normal Amid Uneven Recovery
Sharp swings in container freight rates are likely to continue this quarter as shipping companies struggle to gauge demand amid an uneven global recovery from the coronavirus.

The cost to ship containers slumped earlier this year as the pandemic pummeled demand, with rates bottoming out in late April. They rebounded steadily with economic activity through May but then jumped 20% last month, according to the Drewry World Container Index, as A.P. Moller-Maersk A/S and other shippers removed capacity from the market.

On the key Shanghai to Los Angeles route prices spiked by 47% in June as China’s rapid economic recovery from the outbreak took the shippers by surprise. The companies over-estimated the amount of blank sailings — when vessels have container slots that aren’t filled — needed and are likely to respond with more supply this quarter, said Simon Heaney, senior manager of container research at Drewry Shipping Consultants Ltd.

 “We are now starting to see the un-blanking of some Trans-Pacific voyages as lines correct their previous errors,” he said. “We do anticipate capacity-discipline to soften as the risk level recedes and cargoes come back.”

The volatility in container rates highlights the extent to which the pandemic and the patchy recovery from it have upended planning at shippers and other global companies. Costs on the China to South America route have dropped 20% from April as the virus ravages that continent, said Daniel Richards, a senior analyst at Maritime Strategies International Ltd., a shipping consultancy.

“Trade flows will return in an unpredictable and likely stop-start manner along different trade lanes,” he said. “It will become harder for liners to calibrate their supply responses” and there’s a risk that companies will try and grab market share, spurring drops in rates, he said.

 

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