Both long- and short-term rates have remained stable even as the COVID-19 pandemic has forced large parts of the global economy to shut down and thereby lower demand for container shipping, says BIMCO’s Chief Shipping Analyst, Peter Sand.
Freight rates have been largely unaffected due to the many sailings that carriers have blanked, resulting in large scale capacity reductions on many of the world’s major container trades.
Carriers have chosen a range of measures to lower capacity, including the idling of ships, and blanking of sailings, which has driven the idle container ship fleet to record highs in the past few months.
On top of this, some carriers have chosen to slow down their ships or avoid expensive canal tolls.
[adrotate banner=”313″]Meanwhile, a few container ships have chosen the longer route around the Cape of Good Hope in South Africa, rather than the shorter and more expensive route through the Suez Canal.
The falling oil price has resulted in lower bunker fuel prices, lowering the cost of sailing the longer distance to below that of the Canal tolls.
These measures also reduce the available capacity and artificially hold up freight rates, BIMCO notes.
While the cost of freight per container has remained stable, the lower volumes and fewer sailings mean that although carriers can reduce some losses by blanking sailings, the disastrous effect that the coronavirus is having on their bottom lines is masked by the stable freight rates for the time being,
…explains Sand.
Over the past two years, the container shipping industry has faced several challenges, as a result of the trade war, the higher fuel costs due to IMO 2020, and now, the COVID-19 which is causing volumes to drop.
Although lower volumes are being fixed in the spot market, it is key to tracking developments in the container shipping market, as it quickly responds to the changing situation and adjustments to demand and supply, says BIMCO.
On the other hand, the longer-term contract rates are key to understanding where profits in the liner industry are being generated.
