As global shippers brace for a significant increase in freight rates across all routes, local players are more circumspect about the level in the SA market.
While shipping lines contacted by FTW were reluctant to put a figure to the rate rises that South African shippers can expect on various routes, there was consensus that the levels would not be in line with global trends.
Shipping consultants Drewry have predicted an average 16% global increase on all routes this year with the upward trend continuing into 2018 (FTW August 4, 2017).
In a recent webinar they made it clear that it was a question of sustainability – a sentiment shared by DAL Agency SA managing director David McCallum.
“In order to provide a reliable and dependable service to the trades, reasonable freight rates must be generated by all carriers,” he told FTW.
“Today’s rates in the EuropeSouth Africa trade are not sustainable and substantial double digit increases are necessary.
“Across the transport chains various cost elements have already increased or are increasing and need to be covered via a recovery of the freight rate levels.”
In the global context, the reversal in low freight rates has been driven in part by worldwide economic growth – along with the recent merger and acquisition (M&A) frenzy and a break from the ordering of big ships which has reduced capacity.
At the end of the day it all boils down to simple supply and demand.
“That is all there is today,” said regional trade and sales manager – Southern Africa for MOL South Africa, Iain McIintosh.
While he agreed with Drewry’s analysis, he said the recovery would not be in all markets – although there was a trend. On the SA-Europe trade he said rates had actually weakened marginally in both directions over the last 18 months but did seem a lot more stable now.
“I would envisage little change on this trade given both SAECS and MSC are deploying sizeable tonnage and there is no sign this will change. Limited operators keep the trade relatively balanced,” he said. The Asia-SA trade however tells a different story with a major recovery having started from mid-June 2016.
“Rate levels in the spot market in Q1-2 of 2016 reached US$250- 300 per TEU. APM with slot charterers Hamburg Sud/ CMA-CGM downsized Safari from 9200 nominal to 6500 nominal and that gradually stripped out capacity.
“Capacity pushed up a little over late 2016 early 2017 – and reduced again as this year progressed. The graph above highlights this development. As Asia-SA capacity reduced it slowly balanced with demand and utilisation levels were over 90%. The result of this tightening allowed for a successful GRI Asia-SA to current spot levels of US$ 1300- 1400 per TEU. This is a classic case of where Asia-SA trade showed moderate growth [YTD up 4-5% on 2016 which was a low base anyway] so the market recovery is entirely capacity driven. So yes you could align this to what has happened in other trades around the globe.”
Looking to the future, McIntosh believes the market will not be driven by demand in the short term “unless something miraculous happens in our economy".
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Today’s rates in the Europe-South Africa trade are not sustainable and substantial double digit increases are necessary. – David McCallum
