As shipping freight rates fall; what does the future hold?
What is the similarity between oil prices and shipping freight rates? Of course, the first similarity is that the prices of oil and shipping freight rates have been consistently falling for the last two years. Both oil prices and shipping freight have another similarity. Both have been hit by a global economic slowdown which has resulted in contraction in demand. But the most important similarity between oil prices and shipping freight rates has been the build-up of excess supply. Like oil companies invested heavily in shale capacity when oil prices were at above $100/bbl, similarly shipping companies also built up tremendous capacities during the last 3 years when the CCFI Freight Index was quoting in the range of 1150-1200. Today the index is down to 735 and, with more capacity coming up by the year 2019 it is doubtful how much the freight rates can increase from here. Consider this simple example. Today it costs less than $300 to move a 40-foot container from Shenzhen in Chi
