Carriers GRI’s Losing Battle Against Sluggish Rates

Trans-Pacific carriers got some relief this week from falling rates through a general rate increase (GRI) that was implemented on Tuesday. The Hong Kong-Los Angeles Container Rate Benchmark rose $250, 63 percent of the proposed $400 GRI. This followed a six-week slump that saw a total decline of 24 percent or $600. This week’s GRI brought the rate to $2,150 per FEU.

While the GRI helps, freight rates are still likely to decline in the major east-west routes due to a handful of carriers that continue to slash rates in order to gain market share. Analysts predict persistent sluggish rates until the carriers start addressing the real problem of under-capacity. The situation is even more problematic in the debt-ridden Asia-Europe trade, with rates already falling below break-even levels. The Shanghai Containerized Freight Index fell below $1,000 per 20-foot-equivalent unit last week despite GRIs between $500 and $600 per TEU on May 15th.

While GRI’s will help carriers now in the long run the only way to maintain a sustainable rate will be for the carriers to cut their capacity, no matter how reluctant they are to do so.