Ocean Freight Will Rise In April

In an interview with Latin Trade, chief analyst at the Infrastructure Services Unit of the UN Economic Commission for Latin America and the Caribbean (Eclac), Ricardo Sánchez, predicted a small but significant recovery in the value of ocean freight rates, especially in the continent’s east coast routes. Sanchez expects rates to increase gradually over the year, to stabilize at the beginning of the last trimester of 2013, and then to rise again at the beginning of 2014.

“The revaluation of currencies in the continent will considerably drive up trade in the region; I will say around 7 percent on imports and 6.5 percent on exports. This will have an impact on on ocean freight rates, which could result in an increase of 18 percent in South America’s east coast routes,” says Sánchez.

Such recuperation would set prices almost at the same level they were in November 2012, before they tumbled 25 percent. According to Sánchez, the upturn should be credited to the route’s characteristic dynamism, as well as the incursion of container shipping companies into the reefer business.

However, these factors alone will not contribute to the predicted rise. After a 2011 price war caused freight rates to fall precipitously, maritime companies have changed their business strategy to one that allows them to make profit and not just gain market share.

General Rate Increases (GRIs) have been implemented by different shipping companies in order to restore the freight rates levels that had dropped drastically in 2009 and 2011. “Rates in 2012 were still very low and had become unsustainable for the industry,” says Michel Donner, senior advisor of Drewry Consultants, which specializes in ports and shipping. Donner expects more attempts to implement GRIs this year.

There is also the issue of rising bunker prices and their positive effect on the rise of rates. “While particularly hard to predict, it is expected that bunker surcharges should remain within a few percentage points of the 2011 levels,” adds Donner.

To reduce the industry’s overcapacity, shipping lines are taking measures such as scrapping older vessels and introducing new ones with more capacity. They are also reducing their navigation speeds to save on bunkers and increasing the number of ships serving a route. Additionally, they have entered new service alliances to idle more ships on each of their fleets.

Of these strategies, the introduction of ships with more capacity to the region’s routes could impact ocean freight rates negatively, say the specialists consulted by Latin Trade. “Container ships with a capacity of more than 9,000 TEUs will become the new standard in Latin American routes, and this could put a limit in the increment of freight rates,” says Sánchez.

Donner refused to be deterministic about the consequences, but conceded that if in the next couple of years Latin America upgrades its infrastructure to efficiently serve these types of vessels, trade could increase dramatically in the region.

Reports published at the beginning of March by ocean freight carriers Panalpina, CMA CGM, and Hapag-Lloyd stated that 2013 would be a year of positive, yet limited, recovery in freight rates due to uncertainty of the global economy.

If trends described by industry insiders and experts hold up, 2013 could be the year the maritime industry finally navigates away from a four-year market lull.

Rebeca Fernández reported from Detroit.