FAK Developments Suggest
Further Value From
Long-Term Contracts

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During 2017 carriers continued in
their almost monthly ritual of
announcing GRIs on the Far East
- USWC trade. At the turn of the
year FAK increases of around
$1,000 per FEU were partially
adopted by the market, helping to
increase rates from $1,646 FEU
recorded on 31st Dec-16 to
$2,134 FEU on 1st Jan-17, an
increase of 29.6%.

The rush to fulfill shipments prior to
Chinese New Year (CNY) on 28th
Jan-17, carriers implemented a
second GRI in the same month, this
time of around $600 per FEU,
increasing rates to $2,269 FEU as
reported on 15th Jan-17.

Reflecting a key theme on many of the major trades, which
we will explore for 2018, carriers were unable to maintain
rate levels after the implementation of these GRIs.
Once the market returned from CNY celebrations, rates begin
to immediately slide, falling for the rest of Q1-2017. As of
31st Mar-17 they were reported at $1,447 FEU, some 32.2%
During the remainder of 2017 rates subsequently failed to
reach the high reported at the start of the year, despite
carriers best efforts to push through multiple additional
increases.

As we approach the end of Q1-2018,
rates so far tell a very similar story
the pattern witnessed in 2017.
Carriers were again able to push
through a planned GRI effective 1st
Jan-18, this time for around $1,000
FEU. This helped to lift rates from
$1,249 FEU on 31st Dec-17 to $1,565
FEU on 1st Jan-18, a jump of 25.3%.

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Key Takeaways Offered From
Understanding Recent Rate
Developments

Shippers should be somewhat
buoyed by carriers inability to sustain
rates after GRIs have been
implemented.

While historical rate
developments are
not necessarily
reflective of how
they may develop in
the future, they
remain indicative of
a market which
remains
oversupplied and
understanding these
trends can provide a
useful benchmark
when negotiating
long term contracts.

Carriers have the
power to change
market fundamentals
via service
withdrawals, but the
discipline required for
this to be sustained
in the long run seems
lacking. Therefore it’s
not unreasonable to
assume future GRIs
on the trade, will on
average, be quickly
followed by rate
discounting.

Despite this, early indications suggest some shippers are
paying a premium to what could have been achieved in
2017.
In particular, those negotiating long term contracts for
commencement around May-18 are achieving an average
price of $1,455 FEU, versus $1,386 FEU recorded at the
same period a year earlier.
However, shippers should be questioning, with current FAK
rates seemingly developing along the lines of 2017 and
already 23.8% lower than this time last year (as of 20th
Mar-18), should they be finalising long term contracts at a
similar level to 2017 or perhaps slightly lower?