Market News By Xeneta
January 29, 2024
Market News by Xeneta Jan 29,2024
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OCEAN RECAP
Global container shipping continues to be heavily affected by the Red Sea crisis.
The impact on the cost of ocean freight shipping is obvious, with spot rates from the Far East into Europe rising faster than they did at the start of the Covid-19 pandemic disruption in the closing months of 2020.
Spot rates from the Far East to the Mediterranean are currently 218% higher than they were on 1 December 2023, 52 days ago. Back in 2020, rates on this trade increased 156% during a comparative 52 day period.
Trades less directly affected by the Red Sea crisis have also seen spot rates jump up.
From the Far East to the US West Coast, spot rates on 25 January stood at USD 3 750 per FEU, 129% higher than at the start of December last year.
This is a bigger increase than that measured from the Far East to the US East Coast despite this trade being exposed to the Red Sea Crisis, as well as restrictions on Panama Canal transits.
Spot rates from the Far East to the US East Coast are now 116% higher than they were on 1 December, averaging USD 5 375 per FEU.
Similar to what happened in 2020 and 2021, disruption on just one, two or three major trades quickly has consequences on other trades, typically higher rates and a reduction of capacity.
This year is a reverse of what we saw back then, disruptions on the major trades from the Far East into Europe rippling out to the transpacific.
Many shippers have been less concerned about rapidly increasing freight rates, instead prioritizing getting the goods they need where they need them to be. There are plenty of examples of factories halting production as they haven’t received the materials they need, costing more than the increase in rates would.
Suppliers are increasingly looking to offer solutions to shippers needing a faster transit time.
For example, Hapag Lloyd started sea/land solutions, delivering cargo to eastern Saudi Arabia, where it will then be transported to the western side of the country before being loaded onto a new ship which transits the Suez Canal and continues northward. Other shippers are looking to rail and air options.
Despite most major carriers now avoiding the Red Sea, some CMA CGM ships continue to sail through the area, as do many smaller niche carriers.
OCEAN OBSERVATION
Data from Xeneta shows freight rates will likely rise further in early February, however, we expect rates to reach their peak shortly thereafter.
The big problem at the moment is ships being in the wrong place, particularly problematic in the weeks leading up to the Lunar New Year.
The delayed return of ships back to the Far East means many services are being blanked or delayed, as carriers simply don’t have the ship to run the service.
However, once the pre-Lunar New Year passes and exports out of the region fall, carriers will have a chance to re-set.
The crisis in the Red Sea looks set to last, with the largest carriers all now expecting to have to sail around Africa for the foreseeable future.
However, even though transit times will stay longer, the possibility of a reset post Lunar New Year gives carriers the hope of establishing what services they can continue to offer.
Carriers could bring in new ships, either some of the many new ships delivered so far this year or vessels from other trades.
This would provide shippers and others more predictability and should lead to the spot rates falling, although they are unlike to return to pre-crisis levels any time soon.
OCEAN OUTLOOK
While there is no guarantee that carriers will be able to stabilize their offerings over the course of February, shippers shouldn’t expect the current high rates and sense of chaos to continue in the longer term.
In contrast to the disruption during the pandemic, a result of more structural problems of a quick drop and then rise in demand and limits on port efficiency, the impact of the Red Sea crisis on container shipping is limited in scope, and there is still plenty of capacity available.
We shouldn’t forget about discussions throughout last year about overcapacity being a huge problem for carriers in 2024.
For shippers this means that if they can hold back on tendering and signing new long term contracts right here, right now, they will avoid being locked in at rates which are unlikely to be sustained.
While carriers are still willing to offer low long term rates to big volume shippers, most can expect to see lower rates coming through once the initial shock of the Red Sea Crisis fades and a new normal is established.
On top of the Red Sea Crisis, the world’s second and fifth biggest carriers, Maersk and Hapag Lloyd, have announced a new alliance. From February 2025 they will form the ‘Gemini Corporation’.
The new alliance coincides with the end of the 2M alliance in January 2025, with the two carriers announcing they will seek to run a true hub-and-spoke model, offering schedule reliability of at least 90%.
This announcement leaves the other major global carriers, especially those left behind in THE Alliance, which Hapag Lloyd will leave to join the new alliance, wondering what to do, as they are left in an alliance with considerably less capacity than their competitors.
One thing for sure, the idea of schedule reliability of 90% would be very welcome for shippers, who, as well as the headaches from the current crisis, have been dealing with poor schedule reliability.
AIR RECAP
The Red Sea crisis is in the headlines, but what has been its impact across the world’s air freight corridors?
The global air cargo load factor stood at 57% in the week ending on 21 January, falling 5 percentage points from its peak in mid-December 2023.
In turn, the average global air cargo spot rate charged by carriers fell 14% to USD 2.28 per kg in the same timeframe from mid-December to 21 January, returning to a similar level as the average global seasonal rate.
The Red Sea crisis has become a focal point in ocean container shipping since mid-December.
Missiles from the Houthi militia have disrupted Asia-Europe routes of container ships, forcing them to transit via South Africa's Cape of Good Hope.
This additional route is currently adding up to three weeks to the existing shipping schedule and the threat of container equipment shortages, unreliable shipping schedules, and ocean freight rates increasing by more than 200%.
Retailers and car manufacturers in Europe, including Ikea and Tesla, have started experiencing product delays or halted production due to this crisis (source: CNBC).
However, the impact of the Red Sea crisis on the air cargo market has been mainly concentrated on routes between Asia, the Middle East, and Europe. This has not had a significant impact on other air cargo routes.
For example, the spot rates for air cargo from China to the US charged by carriers remained relatively flat at USD 3.54 per kg in the first three weeks of January. And the spot rates for air cargo from Europe to the US hovered around USD 1.93 per kg in the same period.
This trend is also seen in the global jet fuel market. Brent oil spot prices have remained stable due to strong global crude oil supply and weak demand caused by a sluggish global economy.
China, the second-largest oil consumer, had one of its slowest GDP growths at 5.2% for three decades in 2023.
Unlike the Covid-19 pandemic, the Red Sea crisis is a supply chain issue, not a trigger for demand growth.
As a result, the impact on downstream jet fuel spot rates has been limited. US Gulf Coast Kerosene-Type jet fuel spot rates have remained around USD 2.47 per gallon since mid-November (source: EIA). However, European jet fuel supply may be more affected.
According to Platts, the global jet fuel price increased by an average of 2.0% week-on-week in the week ending 19 January, but the Europe & CIS region experienced a higher increase of 4.5%.
This is because shipping disruptions in the Red Sea, where about one third of Europe's jet fuel imports passed through last year (source: Kpler), have created uncertainties for the regional market.
AIR OBSERVATION
Shippers will likely face headwinds when renewing long-term contracts in the early part of 2024. This is due to a stronger-than-anticipated peak season in 2023.
For instance, long-term air cargo rates from China to Europe rose by 23% between early August 2023 (before the peak season) and late December 2023 (the end of the peak season), in response to the surge in short-term rates sold by airlines.
Additionally, the ongoing Red Sea crisis has led to a surge in air cargo volumes from Asia and the Middle East to Europe.
These volumes exceeded the weekly highs of the 2023 peak season for two consecutive weeks in mid-January. This is unusual given the period following the year-end peak season is typically quieter.
Xeneta has observed some shippers, particularly in the apparel industry, have been shifting a significant portion of volumes from ocean freight to air due to the situation in the Red Sea.
As a result, short-term airline sell rates from Asia and the Middle East to Europe have been increasing.
For example, the short-term rate for general cargo from China to Europe rose by 10% in the week ending 21 January compared to two weeks earlier.
Air short-term rates are expected to continue to rise as shippers rush to transport their goods out of China, South Korea, and Vietnam before the weeklong Lunar New Year holidays starting on 10 February.
Therefore, it may be advisable for shippers, especially those with large volumes from Asia to Europe, to negotiate new contracts for no more than six months or extend existing contracts from the previous year if possible.
The current market volatility is more a result of disruptions in ocean shipping rather than improvements in market fundamentals.
This means we may get a clearer picture of the market direction following the Lunar New Year holidays.
AIR OUTLOOK
In the coming weeks, we anticipate another seasonal surge in air cargo demand.
A stronger-than-expected air cargo demand is brewing as the Asia to Europe market approaches the Lunar New Year holidays, which coincide with the ongoing Red Sea crisis.
This will be further amplified by Mother's Day and Valentine's Day, which will extend the market ‘excitement’ beyond the Asia to Europe region.
A resurgence of classic air cargo seasonality is more likely to be observed as we head further into 2024. This is because excess inventory accumulated during the pandemic has mostly been corrected during the past year.
According to the US Census Bureau, the latest inventories to sales ratio for US wholesalers decreased to 1.35 in November 2023 from its peak of 1.55 in February 2023.
In addition, despite a December uptick in year-on-year growth of the Consumer Price Index in Europe and the US, inflation in advanced economies has mostly cooled in 2023.
We will keep customers informed of when to expect a potential interest rate cut following the release of the US Personal Consumption Expenditures price index, which is the Fed's preferred inflation measure, on Friday, 26 January.
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Xeneta is the leading ocean and air freight rate benchmarking, market analytics platform and ocean container rate index, Xeneta Shipping Index (XSI®).
Xeneta’s powerful reporting and analytics platform and data density provide liner-shipping stakeholders the insights they need to understand current and historical market behavior – reporting live on market average and low/high movements for both short and long-term contracts.
Xeneta’s data is comprised of over +400 million contracted container rates and covers over 160,000 global trade routes. Xeneta is a privately held company with headquarters in Oslo, Norway and regional offices in New York and Hamburg. To learn more, please visit www.xeneta.com
NOTE: The XSI® public indices reports are based on long-term contracts only.
© 2024 Xeneta AS
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