Shippers brace for freight rate and BAF increase onslaught

Source: The Loadstar
Date: 4th April 2023

A definite end to rock-bottom freight rates could be in sight, as carriers take advantage of tight capacity management to launch rate restoration programmes across their networks in the next few weeks.

Moreover, shippers can expect an increase in bunker surcharges, as the shipping lines ramp up BAFs to mitigate the impact of higher fuel costs.

The ocean carriers are preparing to unleash a barrage of GRIs this spring, in order to shore-up freight rates ahead of the peak season, and Hapag-Lloyd has led the charge with a shock $1,000 per 40ft increase on shipments from Asia to the US from 1 May.

The German carrier’s customer advisory, published on 31 March to avoid any association with an April Fool’s joke, has taken the industry by surprise, given the parlous state of a tradelane still suffering from chronically inflated retail inventories.

In fact, to mitigate the weak demand, carriers are planning to blank up to 50 head haul sailings from Asia to the US east and west coasts this month.

Container spot rates between Asia and the US west coast have collapsed, from over $20,000 per 40ft in mid-2021 to just $1,000 and carriers desperately need to raise short-term rates in an effort to boost stalled annual contract negotiations.

But one carrier contact told The Loadstar: “They won’t get anywhere near a $1,000 a box, but it is more about setting the tone for the outstanding contract discussions.

“Hapag has used these ‘shock and awe’ tactics before and the important thing is that, despite the weak market fundamentals, they can get BCOs thinking again about sustainable pricing,” Hapag added.

It remains to be seen however, whether Hapag-Lloyd or its peers will look to announce similar GRIs on other routes, including the key Asia-North Europe tradelane.

Recent reports to The Loadstar suggest that in the past few weeks carriers have mostly succeeded in matching supply with demand on the transpacific and Asia-Europe, with export sailings last week said to be “close to capacity”.

And spot rates are seeing a slight uptick as a consequence.

“Vessel space is lacking at the moment; we are seeing vessels full until the third week of April, so there are chances that carriers will try to push for further rate increases for April voyages,” a logistics source told Platts Container Freight Weekly Commentary.

Meanwhile, a big spike in oil prices, following the OPEC + coalition of oil-producing countries’ surprise decision on Sunday to cut output, could result in a fresh raft of bunker surcharges for shippers.

The price of Brent Crude jumped by around $10 yesterday to $82 per barrel, exerting pressure on the bunker supply market, which in turn saw the cost of Rotterdam-sourced compliant low-sulphur fuel increase $25 today, to $595 per tonne.

Bunker prices are likely to remain higher in the coming weeks, which will trigger carrier BAF increases.

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