WITH the tightening of vessel space in the run up to the Chinese New Year and as rate hikes are implemented, freight rates on services from Asia to Europe have started the year at their highest level in 17 months.

The latest figures from the Shanghai Containerised Freight Index show that prices on services from Shanghai to North Europe this week climbed 16.8 per cent compared to the week before to US$1,765 per TEU.

On services from Shanghai to the Mediterranean, freight rates rose by 14 per cent during the same period to $1,791 per TEU.

The increases in rate levels come as shipping lines begin to implement various rate hikes for January. Maersk Line, Zim, CMA CGM, OOCL and Hapag-Lloyd announced that they will implement rate increases next week of $250-$500 per TEU. The following week Hanjin Shipping will introduce a rate increase of $500 per TEU.

Space on vessels traditionally tightens ahead of Chinese New Year, which this year falls on January 31. Maersk Line has already warned that its network is coming under "high pressure" due to "strong seasonal demand," according to UK's Lloyd's List Intelligence.

Freight Investor Services (FIS) broker Ricky Forman also said a G6 Alliance vessel had ended up in dry dock and had been replaced by a smaller ship, contributing to the tightening of space. Mr Forman expects rate increases to be maintained over the coming weeks.

According to Containerisation International's vessel load-factors analysis, utilisation rates on vessels sailing from Asia to North Europe will reach an average of 96 per cent in the first quarter of 2014 and utilisation rates on ships heading from Asia to the Mediterranean will hit 90 percent.

The prices this week on services from Asia to north Europe are 39 per cent higher than at the same point last year and more than double the level reached during the first week of 2012. Prices on the trade lane have not been as high as they are at present since July 2012.

However, FIS has warned that it does not expect the rate increases to last long. FIS pointed out that this year is set to be a record for vessel deliveries in terms of capacity, whereas demand growth is expected to lag.

Data from Lloyd's List Intelligence shows that 1.7 million TEU of capacity is due to be delivered this year, representing fleet growth of 8.9 per cent.