Shipping rates hit new lows on excess supply

Luke Graham | News Assistant

The global shipping industry continues to fall victim to weakening demand and excess supply with freight rates on some routes hitting all-time lows, latest figures show.

Average spot freight rates fell to a record low of $701 per 40-foot shipping container last week, according to the World Container Index (WCI) which tracks 11 global shipping routes. This was the lowest reading since the index started tracking rates in 2011.

The WCI index is 60 percent below the five-year average and has fallen 62 percent in the past year, according to the WCI's director, Richard Heath, in a press release.

A cargo ship docked at the Port of Long Beach, Calif.
Harriet Taylor | CNBC

One of the worst hit lines is the Asia to Europe route. The Shanghai Containerized Freight Index showed shipping costs on the route have fallen 82 percent over the past 10 weeks to $211 per 20-foot container.

Along with weakening demand from markets such as China, the glut of container ships plying the world's seas has been a major factor hitting freight rates, Philip Damas, director at Drewry, told CNBC in a phone interview. The current rates are not sustainable, he added.

Maersk echoed these reasons in their recent full-year financial reports.

"The continued lack of demand and over-capacity resulted in sharply declining rates from the second quarter and onwards," said Søren Skou, CEO of Maersk Line, in the company's annual report.

Container ship in Suez Canal, Egypt.
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According to Maersk, global shipping demand grew by 1 percent last year, compared to an 8 percent growth in supply capacity.

"We expect the container shipping market to grow a bit more in 2016, but it will still be a challenging year," added Skou. "Not least as over-capacity and a large order book, sufficient for many years of growth, plague the industry."

However, the low rates are a positive for exporters looking to cut costs.

"Rate reductions are spreading across all routes, as the shipping market continues to soften" said Damas in a press release. "This is good news for shippers' cost budgets, as the latest average index value of $701 per 40ft represents an expense of less than 10 cents per km and makes products competitive even in remote markets."

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