What is going to happen to sea freight rates in 2018?

Freight rates in the container shipping industry have declined over recent years as the world economy stagnated and the industry became clogged with over-capacity. Typically rates have decreased by 40% in real terms over a four year period on major world trade lanes.

Over Capacity Freight Shipping

One of the big causes of over capacity has been the increase in the size of ships, with all major carriers ordering ships in the 18000 – 22000 TEU unit size (TEU = twenty foot equivalent unit). To put this in perspective, ten years ago the biggest ships had a capacity of around 10000 TEU.

Logic would dictate that as the container shipping industry worldwide is not expanding to any appreciable extent and there is already over-capacity, it would not be sensible to order any new ships until some of the oldest ones came to the end of their working lives and were sent for scrap.

In 2016 this logic held good and there were no new orders of large ships of + 18000 TEU size. There was an overall increase net increase of capacity of 280000 TEU across the world though, all smaller ships used for feeder services and small trade lanes.

Orders Of Large Ships

In 2017 shipping lines decided that ordering large, new ships was a good idea after all and so 20 new ships were ordered over 18000 TEU capacity. Along with these large ships many smaller ships were ordered too so a total 671000 TEU capacity was ordered. This is way in excess of the amount the ships being scrapped and so there has been large next increase in capacity.

Whilst rates are holding up on the run up to Chinese New Year, which is no surprise to anyone in the trade, the excess in capacity post Chinese New Year is expected to put a downward pressure on freight rates.

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