By Mike Wackett 10/03/2023
The latest rate war on the transpacific and Asia-Europe tradelanes could see some ocean carriers, overly exposed to the spot market, record their first loss-making quarter since the onset of the pandemic.
In a worst-case scenario, rate levels “could mimic the extreme lows of 2016”, according to Vespucci Maritime CEO Lars Jensen.
That was the year that saw the demise of Hanjin Shipping, which spurred a frantic round of liner consolidation. And Mr Jensen warned that the rate war “could intensify” if the alliances cannot agree on pulling sufficient capacity.
“Freight rates are, in some cases, already below pre-pandemic levels. The fact that the carriers still do not remove sufficient capacity to match the demand decline implies some favour volume increase over rate levels,” said Mr Jensen.
Indeed, this week’s container spot rates continued to head south, all the indices that track average rates showing red.
Xeneta’s Asia-North Europe component declined 5%, to $1,491 per teu, having lost 11% in the month so far and almost a third in value since the start of the year.
Meanwhile, the Asia-Mediterranean tradelane, which has until now proved more resilient, is starting to see some big falls, with Drewry’s WCI shedding 8% on the week, to $2,287 per teu.
On the transpacific, the Freightos Baltic Exchange (FBX) Asia to US west coast reading edged down to $1,040 per 40ft this week – a level that would be sub-economic for carriers but for the higher-rated contract base cargo filling up their ships. For the US east and Gulf coast ports, the FBX reading fell 3.5% on the week, to $2,266 per 40ft.
Despite this, BCOs on the tradelane still prefer the greater stability of contract rates to the extreme volatility of the spot market. In fact, an executive of a US retailer told The Loadstar on the sidelines of the recent S&P Global TPM conference in Long Beach that his company did not have the staff to monitor spot markets on a daily basis.
“We simply do not have the people or the expertise to play the spot market, so we will get a fair contract deal from a couple of carriers, and also probably use an NVOCC this year to cover our imports from China,” he said.
And Xeneta’s recent survey of its customer base confirms the reluctance of shippers to put too high a percentage of their volumes into the spot market. A poll by the freight rate benchmarking firm found around half of the respondents were “negotiating for one year as usual”, while a fifth were doing so with index-linked adjustments included, with just 10% solely using the spot market.
And on the transatlantic, the erosion of spot rates is accelerating, with the XSI North Europe to US east coast component slumping by another 8% this week, to $4,781 per 40ft.
Drewry estimates utilisation levels of headhaul sailings have fallen to only 60% following the huge capacity injections on the trade.
“That only spells one thing: lower rates,” commented Drewry’s Simon Heaney.