Rising Bunker Costs, Charter Rates Poised to Squeeze Carriers

Repeated attempts to apply general freight rate increases have largely failed.

Rising charter rates and bunker prices are placing greater pressure on carriers who have been struggling to raise plunging freight rates, JOC reports. 

Though many shippers have managed to report profits due to weaker bunker prices in the first quarter of this year, the industry may face a more difficult time heading deeper into 2015, especially as bunker prices have begun rising again and charter rates have reportedly already risen 40 percent so far this year. 

“The cost of operating ships will start to feature on liner executives’ radars," said an unnamed source.

"Some of the recent intra-Asian start-up services may now be looking marginal in a financial sense.”

Meanwhile, attempts to raise freight rates, such as the general rate increase at the beginning of the month, have so far reportedly failed.

According to the Shanghai Containerised Freight Index (SCFI), carriers have already lost 72 percent of the price gains instituted with the rate increase. 

Unnamed sources also say that more and more cargo is being pulled from long-term contracts and into the spot market, where competitors have rapidly underbid one another. 

Despite shippers knowing the adverse effects of overtonnage, carriers are reportedly reluctant to reduce capacity given that any positive rate improvements following would benefit other carriers. 

According to SeaIntel, the current trends are unlikely to change as companies continue “the game of capacity management primarily through blanked sailings … with their resultant negative impact on supply chain stability.”

Earlier this year, Alphaliner criticised the numerous rate increases that carriers have been attempting to apply on the East Asia-North Europe route as becoming "hard to justify."