Strong Q2 exports could push up ocean freight rates after their nine-month-long slide.
After plunging to 1004.95 points on April 8, the China Containerized Freight Index for composite services climbed to 1011.35 a week after. On April 22, the CCFI composite index fell to its lowest point since 2010, at 1001.96, punctuating a steady decline that started in September 2010.
Analysts are certain shipping costs have bottomed out and are now on the rebound. Recent CCFI composite index data seems to support this, climbing two or three points per week to 1015.39 on May 27. This is still 10 percent lower year on year, but industry pundits are expecting average costs for 2011 to climb up to 2010 levels. This is because the anticipated increase in export volume in the next six months could result in a repeat of last year’s container shortage pushing up costs.
Richard Li Guanghua, researcher at Guojin Securities, said the projected growth in cargo capacity is unlikely to meet the anticipated rise in exports. A shortage of containers is possible although not as severe as last year.
Shipping costs are driven mainly by supply-demand factors. High season typically is in May and June, while peak months are September and October.
Customs statistics show China exported $399.64 billion worth of goods in the first quarter of 2011, up 26.5 percent year on year. Shipments are expected to grow further in the second quarter. Li said low inventory and orders for the summer and Christmas seasons are factors that could pull up exports this quarter.
Lower-than-expected shipments in the first quarter and new players pushed down shipping costs. But loading rates for the US and European routes have now been increasing, and are now at 90 percent.
Further, The Containership Company stopped plying US routes early this year. One of the entrants in 2010, TCC’s pullout could balance the supply-demand situation and give shipping companies greater control over prices once volume starts to increase.
Fuel surcharges account for 20 percent of overall costs in the container shipping industry. Although rising crude oil prices have no direct impact on ocean freight rates, ship owners typically pass on the additional expense in the form of bunker adjustment fees or fuel adjustment factors and emergency bunker surcharges.
Note: This article "Shipping costs forecast to increase in 2H" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.
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