Long-term freight rates are on the rise according to a new analysis from BIMCO. While the increase in long-term freight rates is in line with BIMCO’s expectations given the current strength of the spot market, they note that since most containers are shipped on long-term contracts the rate increase is more significant for shippers and contributes to the profitability of the carriers.

BIMCO notes that the rise in long-term contract rates follows after a similar increase in short-term rates and especially for rates to the United States. They are attributing the rise in rates to the rebound in volume and consumers return to shopping after the slowdowns earlier in the year that resulted from COVID-19 related restrictions.

Volumes proved strong for the container lines in July and August after the first six months of the year when container volumes between the Far East and North America were down by 8.5 percent or more than 300,000 TEUs, according to BIMCO’s figures. The strong volumes experienced in July and August outpaced the year ago. BIMCO’s analysis says that while full-year volumes remain down nearly 2.5 percent, compared to last year, container volumes were up by 180,000 TEUs in July and 280,000 TEUs in August. The majority of the growth was in the Far East to North America trade, which accounted for 212,000 TEUs of the increase.

A key factor has been the resilience in retail sales. BIMCO highlights that after eight months retail sales are up nearly one percent over 2019. This comes after an almost 15 percent drop in retail sales in April as a result of lockdown measures in the US.

The robust demand for goods means that container shipping has been less affected than overall growth figures would suggest, as the industries suffering the most are less reliant on trade, writes Peter Sand, Chief Shipping Analyst at BIMCO. He says that container shipping into the US has been less affected than what overall growth rates would suggest, as many of the hardest-hit sectors (e.g., services) are less reliant on trade than retail sales, which have proven quite resilient. Furthermore, the decline in imports in the first half of the year means inventories need restocking and importers may be looking to frontload stock ahead of more potential disruption to supply chains from a second wave of COVID-19 cases.

As a result, long-term freight rates and particularly those between the Far East and the US have jumped, copying the development in short-term contracts that have seen the increase in freight rates to the US (both coasts) outpacing the rise in spot rates to Europe. In some cases, BIMCO reports long-term rates jumped several hundred dollars overnight.

Long-term rates into the US West Coast were the first to experience a jump, according to BIMCO, following a long period of slightly declining rates. Between September 30 and October 1, long-term rates rose by 37 percent jump and while they have fallen back, they are still 44 percent higher year-over-year. US East Coast rates experienced a similar 30 percent jump and while they have also fallen back BIMCO’s figures indicate they are still 25 higher year-over-year.

With container volumes down over 10 percent in the first eight months of the year between the Far East and Europe, BIMCO points out that rates have seen a more gradual, slow increase. Long-term rates to Europe are up 12 percent versus the end of September similar to the smaller rise in spot market rates on the Northern European routes.

Source: Maritime Executive