OCEAN freight rates for box cargo moving under contracts on major east-west routes have decreased six per cent between March and July with shippers appearing to be benefiting from ocean carriers' cost-reduction efforts by negotiating cheaper contract rates, according to Drewry's Benchmarking Club.

An analysis shows that the cost reduction, based on contract freight-rate data provided confidentially by Asian, American and European retailers and manufacturers "shows that shippers who negotiate well with carriers can continue to reduce their multi-million freight expenditure, despite the recent strengthening of ship load factors."

But many contract rates negotiated recently are loss making for carriers, said Maersk Line CEO Soren Skou, who added that some carriers had fixed rates under contracts of up to 12 months in the Asia-Europe trade at US$1,400-$1,500 per FEU.

"That would be loss making for most companies including Maersk. I would rather live without those contracts and hope to make it up in the spot market," he said.

Contract rates at below breakeven levels have also been negotiated in the transpacific trades where annual agreements are typically renewed on May 1, noted Lloyd's List.

"The reduction in average east-west contract rates follows the renewal in May of many transpacific contracts, at lower rates," said Philip Damas, director of Drewry Supply Chain Advisors, the logistics consultancy arm of Drewry.

The Benchmarking Club comprises shippers with annual freight volumes ranging from 5,000 TEU to more than 300,000 TEU.

Through the club, members can compare their anonymous contract rates with those of other shippers. They are also able to make comparisons against predefined categories of small, medium and large shippers that are moving cargo on the same routes.

Drewry said it believes that the on-going decline in contract freight rates is driven by the reduction of container carriers' own unit costs, as well as the tendency of shippers to centralise their contract-negotiation tenders.