Ocean Market News By Xeneta
July 9, 2024
Market News by Xeneta July 9, 2024
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The Xeneta Ocean iXRT provides an overview of market movements, the key risks and issues to be aware of and insight on how these may develop in the coming weeks and months. Xeneta also publishes an iXRT report dedicated to the air freight shipping market, with the latest edition available here.
Topics covered in this edition of the iXRT Ocean include:
Market worsens for shippers and freight forwarders.
Spot rates driven by Far East exports.
Reliability improving, but still poor.
Long term market starts to rise.
Rate increases could spread to smaller trades.
Ongoing port congestion in Asia.
OCEAN RECAP
The start of Q3 has brought no respite for shippers and freight forwarders, many of whom are still experiencing worsening market conditions.
Participants at Xeneta’s monthly Pulse webinar in June, including some of the world’s major shippers and freight forwarders, shared their experiences of this deteriorating picture.
A survey carried out in during the webinar revealed that only 11% of respondents had not had cargo rolled.
This is down from 20% when the same question was asked at the previous Pulse webinar in May.
Another clear deterioration in the conditions for shippers and freight forwarders is a big jump in the share of respondents saying they are seeing cargo rolled below contracted volumes, from 37% in May to 58% in June.
This is particularly problematic as it demonstrates carriers are not always upholding their contracted duties.
The increasing spread between spot and long term rates is what drives carriers to roll cargo, choosing to prioritize the containers being shipped at higher spot rates rather than the lower long term market.
Far East exports drive global spot rate index
The Xeneta Global XSI® covers all valid long term contracts in the market, therefore in order, to compare the long and short term markets, Xeneta has used the same weighting structure to produce a new global weighted spot rate.
This comparison shows the Global XSI has fallen by 6.4% in the first six months 2024 while the Xeneta Global Spot Rate has risen by 141.8% in the same period.
This dramatic rise in spot rate has been driven by a 251.9% increase on trades out of the Far East.
The above comparison indicates that, while spot rates have not yet risen to the levels seen during Covid-19, the spread between the long and short term markets has returned to its pandemic highs.
Looking at the Global Spot Rate in more detail shows the short term market has now passed the halfway milestone in its climb back towards the pandemic peak in 2022.
The Global Spot Rate now stands at 59% of its peak in January 2022, while it is at 62% when the weightings are applied to trades out of the Far East specifically.
The weighted average spot rate out of North America is even higher, currently standing at 76% of its pandemic peak - although it should be noted that rates on these North America trades did not reach the heights of other major trades such as those out of the Far East.
Compared to the end of last year spot rates out of North America are up by just 4.1%.
The weighted spot rate for European exports is up by 25% in 2024 so far, but rates are still two thirds lower than their pandemic peak.
One way both shippers and freight forwarders are choosing (in some cases with no alternative) to secure space is by paying premium rates. MSC is leading the charge among carriers on this, with the re-introduction of its diamond tier service on the major trades out of the Far East, while HMM is also offering them on rates from the Far East to Europe. The premiums, which are not included in Xeneta’s benchmarks, lie between USD 1 000 and USD 2 000 per FEU. They are slightly lower for 20ft containers, but that is largely explained by rates for these already being high.
Xeneta data shows that while Hapag Lloyd is not directly charging these premiums, it has restarted a China-Germany service which last run during the pandemic, with fewer port calls and higher service levels - for which they are charging rates in line with MSC’s diamond tier.
This will be an interesting service to watch, not only due to its fewer port calls and promise of higher reliability, but also because it sounds a lot like the new Gemini Alliance’s approach and promises.
OCEAN OBSERVATION
Overall, global schedule reliability improved in May, rising to 55.8% - its highest point since November. This is still 10 percentage points lower than May last year, and far off the 80.2% achieved in pre-pandemic May 2019. In fact, the last time at least eight in ten ships arrived on time was later that year in November 2019 (source: Sea-Intelligence).
While globally schedule reliability remains very poor, certain trades are performing better. Noticeably the Far East to US West Coast trade posted a three-year high in May with 64.7% of ships arriving on time - the last time more than six in ten ships arrived on time on this trade was back in the summer of 2020.
OCEAN OUTLOOK
This was the trade out of the Far East with the worst reliability during the pandemic, including a six month period in which only one in ten ships arrived on time, yet it is now the best performing of the major trades - and by quite a margin.
With other trades out of the Far East experiencing a year-on-year decline in reliability (down to between four and five in ten ships arriving on time), the better performance into the US West Coast can partly be explained by it not being affected by the diversions around the Suez Canal and largely avoiding the ports struggling most with congestion.
Length of delays on the rise
The improvement in the share of ships arriving on time masks the increasing length of time those that do arrive late are delayed.
This rose to 5.1 days in May, which means that around 5.6% of the global fleet is absorbed by delays.
In 2019 the share of the fleet affected by delays averaged 2.3%, while during the pandemic it rose to 13.7%.
The latest figure is still considerably lower than this, but added on top of the inefficiencies and extra pressure put on ocean freight container supply due to longer sailing distances around the Cape of Good Hope means capacity is once again very tight.
Carriers are doing what they can to offer capacity - given the current market it is entirely in their interest to get as many ships as full as possible on the trades with the highest spot rates.
Whether that means chartering in new ships, keeping older ships running rather than demolishing them, and buying ships on the secondhand market, carriers will look to increase revenue while they have the opportunity.
Even though getting hold of tonnage for the short term is getting increasingly expensive, with rapidly rising charter rates and higher prices for secondhand tonnage.
This has seen MSC hit the milestone of 20% market share (source: Alphaliner), and heading fast towards controlling 6m TEU of capacity in the market. This high growth from the world’s largest carrier means that more than half of global container shipping capacity is now controlled by the four largest carriers (MSC, Maersk, CMA CGM and COSCO), while the top 10 account for 84%.
The first signs of an increase in long term rates are starting to show. The start of July brought an increase of around USD 600 per FEU on the trade from the Far East to North Europe, leaving the average long term rate for contracts signed in the past three months at USD 2 700 per FEU.
This is still a smaller increase than the jump in spot rates on this trade at the start of July, let alone the 141% increase in spot rates since the start of Q2.
However, Xeneta data shows that at the start of Q3 there has been a substantial increase in rates at the higher end of the long term market.
These went from USD 3 450 per FEU on 30 June to USD 6 560 per FEU on 8 July. For some, these contracts with higher rates are arguably more valuable to shippers than the majority of contracts hovering around USD 2 500 per FEU, as the risk of getting rolled is substantially reduced.
Expect increases in the long term rates to continue, especially as new contracts negotiated in recent weeks against the backdrop of high spot rates are signed and enter validity.
Increasing long term rates is one of the ways in which the spread between the spot and long term market will reduce - the other is development on the spot market.
Smaller trades could be next
For those shippers who do not export containers out of the Far East and have not experienced the spot rate increases on these major trade, the message is ‘enjoy it while it lasts’.
The spiralling spot rates on the major trades out of the Far East will tempt carriers into deploying more capacity in order to drive revenue, especially with the extra pressure from the diversions around the Cape of Good Hope.
Some of this additional capacity will be achieved by redeploying it from these smaller trades, which will in turn push up rates here also. However, while some trades saw smaller increases in spot rates at the start of July compared to May, those from the Far East to the US East Coast and to North Europe posted their largest increases since Q2, up by USD 1 300 and USD 1 115 per FEU respectively.
Port congestion an ongoing problem
Congestion continues to be a problem – and is spreading to more ports as carriers attempt to avoid chokepoints.
Congestion at Port Klang reached a record high in July, while the situation has stabilized in Singapore.
Here, container throughput reached a record high in May of 3.54m TEU – its first time over 3.5m in a month.
As well as more transshipments, the high volumes can also be attributed to an early start to peak season, driven by nervous shippers not wanting a repeat of the pandemic shortages.
This helped drive global container volumes to a new record high in May 2024, when 15.94m TEU were moved, however this pace of demand seems unlikely to last through to the end of the year.
More likely is the early start to peak season suggests either that peak season will end early this year, or peak season volumes will be distributed across more months than usual.
However, as long as congestion continues to eat up available capacity, it’s hard to see a significant drop in spot rates.
Read more about the outlook for the rest of the year in 2024 Outlook Mid - Year Ocean Freight Update
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 +450 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.
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Quarterly Market Average, 40' Container
Monthly Market Average, 40' Container
Quarterly Market Average, 40' Reefer HC
