The Decrease in Contract Rates is Due to Multiple Factors

According to a report by Drewry’s Benchmarking Club, a closed user group of worldwide retailers and companies who thoroughly observe their contract freight rates, freight charges for cargo touching under agreements on the major East-West routes have seen a severe decrease since the start of the year.

The Drewry Benchmarking Club contract rate list, which is created on Trans Pacific and Asia-Europe contract cargo rate records provided by shippers, dropped by 7 percent between May and August this year, the sharpest decline since the Benchmarking Club started working.

The decrease in deal rates has been driven by a blend of lower fuel prices, extra container capacity and intensive struggle between shipping lines. Particularly the bunker prices have tumbled since the fourth quarter of 2014 and this has contributed to a decline in contract rates assigned since the starting quarter of 2014. The change has also been mirrored in the commercial market.

Prior to these crisis there were some strengthening in Asia-Europe contract rates fixed at the end of the 2014 when market situations were tougher. However, as the commercial market has declined and bunker prices dropped, contract rate levels have since weakened. Due to this, the Drewry Benchmarking Club contract rate file dropped 5 percent in the 12 months to the August of this year.

The director of Drewry Supply Chain Advisors Philip Damas remarked that we believe the contract rates to drop more through the remains of this year, assumed the decreasing fuel prices and continuous overcapacity in the market.

Due to the cause of the non disclosure agreements with all shipper members of the Benchmarking Club, Drewry cannot share complete price benchmarking intellect with corporations which are not participants of the Drewry Benchmarking Club. Unlike other catalogs, the Drewry Benchmarking Club contract rate file processes freight tariffs under yearly agreements rather than commercial freight rates.