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China to USWC container spot rates rise 5% while idle fleet ticks up

The container spot freight rates from China East Main ports to US West Coast ports rose to USD 1,837 per FEU on 1 June 2020, a 5% increase from the previous week. The rise marks a positive development despite the Covid-19 crisis which is expected to cause a fall in demand for container shipping in 2020.

Container carriers are facing massive uncertainty with the global economy currently in recession, but the relatively high spot freight rates are limiting losses for container carriers as container volumes falter. Additionally, to some extent, the low bunker fuel oil prices have shielded carriers and reduced the financial damage done.

Nonetheless, the spot rates do not reveal the whole truth about the state of the container ship market. Currently, a staggering 11.6% of the container ship fleet is idle (source: Alphaliner). In container shipping, revenue should be viewed not only in the light of the freight rates, but also the container volumes being transported. By this token, it is evident that although the spot freight rates remain artificially high, the carriers are still incurring substantial losses.

A balancing act

Carriers must engage in the balancing act of sustaining high rates while keeping adequate capacity in the market. For now, the capacity management procedures of carriers seem to have worked, even with carriers drawing back on sailings, which were previously blanked. Nonetheless, in practice, it is an immensely tall task to bring down idle container capacity while keeping spot rates high and thus, it is likely that the idle container ship fleet will remain high for the rest of 2020.

The time charter rates for container ships provide a better scale for the prevailing outlook in the market and unsurprisingly, these rates have nosedived since Covid-19 took a hold of the global economy. The 6-12-month time charter rate for an 8,500 TEU container ship currently sits at USD 16,000 per day, down 47% from 31 January 2020.
Source: BIMCO

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