Container shipping rates continue to fall, no sign of market bottom yet

Container shipping rates continue to fall, no sign of market bottom yet

So much for the theory that container lines are a nefarious cartel capable of controlling freight prices – spot rates continue to fall more than a year after peaking.

“This cliff from which rates have fallen shows that there is more competition in the market than many people feared,” Patrik Berglund, CEO of rate-tracking firm Xeneta, said in a recent interview with American. shipper.

The pace of spot rate cuts slowed in some trade lanes in October compared to August and September. However, rate losses rose again in many ways in November, driving global averages down further. There is no sign of a market bottom yet in most trades.

Lars Jensen, CEO of consultancy Vespucci Maritime, commented on the recent spot action in an online post: “We exit the tunnel, to find that the bridge we are driving over has collapsed.

Decline from peak

Different spot rate indices provide different numbers but show the same downward trend.

The weekly Drewry World Container Index shows a 78% decline in the global composite rate between September 16, 2021 and Thursday. Drewry’s Shanghai-Los Angeles index fell 84% during this period and his Shanghai-New York index fell 73%.

Drewry rate valuations show a gradual decline in the first half of this year, followed by a more precipitous drop from August. Despite the huge drop from last year’s record high, the global index is still 61% above the 2019 average, before the pandemic.

shipping rate chart
Spot rate in $ per FEU. Blue Line: Shanghai-LA, Orange Line: Shanghai-NY, Green Line: Global (Chart: FreightWaves SONAR)

The Freightos Baltic Daily Index (FBX) China-West Coast valuation fell 93% between September 5, 2021 and Thursday. The China-East Coast FBX rate dropped by 84% over this period. The FBX global composite is down 75%.

The FBX indices show a decline in Q4 2021, a plateau in January-April 2022, then a sharp decline since May.

shipping rate chart
Spot rate in $ per FEU. Blue Line: Shanghai-LA, Orange Line: Shanghai-NY, Green Line: Global (Chart: FreightWaves SONAR)

Weekly rate of change in the transpacific

Spot rates fell more sharply on the Asia-West Coast route than on the other routes. Asian and West Coast spot rates look close to bottoming, simply because they can’t fall much further. Xavier Destriau, CFO of shipping carrier Zim (NYSE: ZIM), said Nov. 16, “There isn’t much room for a cut anymore.

Declines in the Drewry Shanghai-Los Angeles Index were steepest in the week ended Sept. 8, when average rates plunged 14% or $780 per forty-foot equivalent unit from the previous week. . The weekly declines eased in October and November. In the week ending Thursday, the Shanghai-Los Angeles rate fell just $30 per FEU or 1.4% from the previous week, to an average of $2,039 per FEU.

shipping rate chart
(Chart: American Shipper based on data from Drewry)

Price dynamics are completely different in Asia-East Coast trade, where continued congestion and high import volumes have kept spot rates higher for longer, meaning they still have plenty of room to fall. .

The Drewry Shanghai-New York Index fell the most in the week ended Sept. 22: 9% or $776 per FEU from the previous week. Unlike the Asia-West Coast market, Asia-East Coast rates show no signs of bottoming and continue to experience significant declines. In the week ending Thursday, rates fell 9% or $438 per FEU from the previous week.

(Chart: American Shipper based on data from Drewry)

Weekly rate of change of world indices

Due to continued declines in the Asia-East Coast path – as well as weakness in other trades such as Asia-Northern Europe – global composite indices continue to decline.

Drewry’s global composite fell the fastest in percentage and dollar terms by FEU in late September. It has continued to see significant weekly declines over the past month. During the week ended November 10, it fell 9% or $277 per FEU.

(Chart: American Shipper based on data from Drewry)

The index most followed among shipping analysts is the Shanghai Container Freight Weekly Index (SCFI), released every Friday. It showed the same pattern as the global Drewry index: the fastest fall in September but the decline continues in November.

(Chart: American Shipper based on SCFI data)

Effect on contractual rates

The majority of containerized cargo is transported under long-term contracts, not spot contracts.

But spot rate moves are increasingly important for three reasons: shippers with contracts transfer more spot volume to save money, which reduces contract volume; the drop in spot rates to levels below contractual rates has forced shipping companies to lower some existing long-term rates during the course of the contract; and upcoming negotiations on 2023 annual contracts will depend on where spot rates go. Most Asia-Europe annual contracts start on January 1 and most Asia-US annual contracts start on May 1.

Even before these dates, long-term shipping rates are already down due to new contracts being signed at other times of the year as well as existing contracts being renegotiated downward.

The Xeneta Shipping Index (XSI) tracks long-term rates. The global XSI fell 5.7% in November from October, the biggest month-on-month decline since Xeneta launched the index in 2019. The regional import contract index Americans fell 8.9% month-on-month. The Far East export index fell 8.5%, more than in any previous month.

According to Berglund, “we have already seen how spot rates have collapsed since the summer. We are now witnessing “catching up” as it exists [annual] agreements expire and new contracts come into effect.

Shipping carriers could face a particularly painful drop in Asia-U.S. contract rates in 2023 if spot rates do not bottom soon and continue to fall in the first half of next year. A falling spot rate environment would put shipping lines in an even worse position when negotiating next year’s deals.

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