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Where to for freight rates in 2016?

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Where to for freight rates in 2016? article image

A turbulent start to 2016 on global equity, commodity and currency markets is painting an uncertain picture for international freight rate developments over the coming year.

Key influences include the volatile geopolitical climate and energy prices – but just as important will be the extent to which carriers idle surplus capacity over the coming 12 months, and whether the global economy can shake off the January wobbles to reignite confidence and “demand” on a meaningful scale.

There is little doubt that massive oversupply, slow demand growth and the associated plunge in global freight rates through 2015 has hurt the shipping sector.

Let’s face it – something had to give when you consider that between 2008 and 2015 container shipping demand grew by a cumulative 36 per cent compared to a rise in the global container fleet (as measured by TEU) of some 88 per cent!

The subsequent sharp fall in rates and profitability saw a raft of consolidation within the liner industry in Q4 2015, with services withdrawn on some routes and ships idled.

By the end of last year, the fleet of idled container vessels had exceeded 1.4 million TEU equivalent. 

Industry analysts anticipate this idling and consolidation will likely continue through to Q2 2016 – thereby tightening, or at least stagnating, the supply of global container (and bulk) freight capacity.

Key question

The impact could be exaggerated on Australasian trade lanes, as a higher proportion of the active capacity will likely be allocated to more heavily trafficked Asia-Europe-USA routes.

The key question is – how will this potential “tighter supply” balance against demand for space from importers and exporters?

The shaky start to global markets in 2016 suggests business confidence is unlikely to kick any time soon … and thus the whole supply chain will aim to keep inventories low and maintain a “hand-to-mouth” ordering process for the time being.  This has pretty much been the post GFC norm in most markets.

At some point however, the tide will turn – and numerous analysts are suggesting Europe and Japan as potential sources of positive economic surprises in 2016.

If we do see some green shoots start to emerge in 2016 in the global economy, then we will see freight demand increase on the back of the required inventory build – and if it does happen at a time when freight capacity is tightening up – then the supply/demand balance will obviously start to swing.

It pays to shop around

Granted – this hasn’t looked a likely scenario since the beginning of the year – but things always look their worst at the bottom.

With such volatility in the market there has never been a better time to “shop around” for the best freight rates and online freight marketplace – CargoHound provides the perfect platform. We have just processed our 1000th quote request and now have 22 of Australia’s best freight forwarders vying for your business.

Michael Holloway is the Business Development Manager for CargoHound, Australia’s first true online freight marketplace. CargoHound brings logistics providers together with companies that need to export or import goods via land, sea or air.

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