Ocean Market News By Xeneta
June 12, 2024
Market News by Xeneta June 12, 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:
Spot rates exceed Red Sea crisis peak on Far East fronthauls.
Shipper-carrier relationships put to the test.
Toxic cocktail of factors behind market spike.
Spot rates flat on secondary trades... for now.
Maersk forecasts better financial picture.
Threat of union action on US East and Gulf Coast.
OCEAN RECAP
Throughout May and the first week in June, the ocean freight container shipping market has seen spiraling spot rates.
On the four major trades out of the Far East into North Europe, Mediterranean, US East Coast and US West Coast the average spot rates have now comfortably surpassed the peak during the Red Sea crisis in January and February.
These are levels not seen since 2022 when the market was still feeling the impact of the Covid-19 pandemic.
During periods of significant market disruption, experiences can vary dramatically.
The spot market is not as much of an immediate concern if you are a shipper who is able to transport the vast majority of cargo on an existing long term contract.
The problem arises when shippers are not able to transport cargo on these agreed rates – and that is exactly what is happening.
If you are a large volume BCO with a direct carrier contract, the chances are you have continued to ship on agreed rates (within contracted volumes).
However, everyone else is potentially at risk.
For example, some freight forwarders are not able to ship on NAC rates and are instead being pushed on FAK rates (albeit at lower rates than the spot market average).
Meanwhile, some shippers and freight forwarders are being forced onto premium rates to secure capacity and avoid their containers being rolled.
It is important to remember, in a fast-moving situation there is always more than one market.
Shippers and freight forwarders are experiencing very different rates depending on their individual circumstances.
Following the Covid-19 pandemic there was much talk about establishing better supplier/customer relationships.
However, good intentions are only ever truly tested during more challenging times and it will be interesting to see how shipper/carrier partnerships survive the latest market upturn.
Carriers will be tempted to increase profits by driving rates even higher and it has certainly not taken some of them long to introduce premium rates to their customers in exchange for space guarantees.
OCEAN OBSERVATION
There is no single cause for the uptick of ocean freight container shipping spot rates – it is more the case of a toxic cocktail of factors.
The recent market disruption was certainly sparked by the conflict in the Red Sea and it is still the major contributing factor, certainly in terms of reducing available capacity due to the majority of container ships continuing to sail around the Cape of Good Hope.
Lessons were learned during Covid-19 and, combined with the fear of more disruption related to the Red Sea conflict, some shippers have taken the decision to frontload end-of-year imports, such as Christmas goods, ahead of the traditional peak season in Q3.
This trend is placing further pressure on available capacity.
There is also significant congestion at ports in Europe and Asia – notably the West Mediterranean and Singapore, as transshipment trends shift due to new routes around the Cape of Good Hope.
Latest data reports 5.7% of the global fleet was tied up in congestion during April (source Sea-Intelligence).
For context, this figure peaked at just under 12% in early 2022 when Covid-19 was wreaking havoc in ocean freight container services.
Shifting trends has also led to problems in securing equipment.
Average container prices (40ft) across key ports in China rose by 45% in May, from USD 2 240 in April to USD 3 250 in May 2024 (source: Container xChange).
These were USD 1 698 in November 2023 and USD 7 178 in September 2021 (at the height of Covid-19), suggesting once again there are concerns regarding availability of containers.
OCEAN OUTLOOK
Further increases in spot rates are expected on the top trades on 15 June.
However, the rate of growth is set to slow down compared to the increases seen in June so far and throughout May.
For example, average spot rates from the Far East to US East Coast jumped 19% on 1 May to stand at USD 5 850.
Early Xeneta data suggests there is likely be a further increase on 15 June, but this may only be around +2.4%.
Long term rates look more stable, but the key question will be whether shippers can actually get volumes moved on those rates, as highlighted in the ‘Recap’ section of this edition of the iXRT.
The major trades from the Far East to North Europe and Mediterranean along with the US West and East Coast usually grab the headlines, but clearly shippers utilize the vast network of other corridors across the global ocean freight shipping network.
While average spot rates remain flat on some of these secondary trades, and some are still falling from the Red Sea crisis peak earlier this year, they will not be fully insulated from the market developments on the top trades.
Carriers move capacity to the trades where they can make the most money. For example, if rates are soaring on the Far East to US West Coast trade, carriers may shift capacity from other trades such as the Transatlantic trade from North Europe to US East Coast where rates are lower.
In turn, this squeezes capacity on the Transatlantic and other secondary trades and puts upwards pressure on spot rates.
Maersk has upgraded its forecast for 2024 and now expects an EBIT of between USD 1-3 billion.
Maersk stood out as the only major carrier to lose money in Q1 2024, largely due to its high share of volumes moved on long term rates (70%).
This follows an announcement earlier this year when Maersk stated it was expecting an EBIT loss of up to USD 2 billion.
While the current market landscape is helpful to carriers in terms of increasing rates, the situation can change.
For example, any large-scale return of container ships to the Red Sea could see spot rates fall dramatically, especially given the record levels of new ships entering the fleet in 2024.
Spot rates can also fall even if diversions continue, as we saw during March and April as markets softened from the Red Sea crisis peak.
The situation is also improving in the Panama Canal after months of drought, with daily transits increasing to 32 this month.
The cocktail of factors are combining to drive spot rates higher, but this is not likely to see the market return to the levels during the Covid-19 pandemic.
Additionally, if the peak season has started early then it should also finish early, but there are numerous factors which could influence this in the months ahead.
The International Longshoremen’s Association (ILA) announced on 10 June that it has suspended negotiations with United States Maritime Alliance (USMX) over a new labor contract for workers at US East Coast and Gulf Coast ports.
The existing agreement will expire on 30 September.
This could see significant disruption if an agreement cannot be reached and shippers will look to take action to protect supply chains - such as an acceleration of frontloading imports, including Christmas goods, ahead of the traditional peak season in Q3.
However. frontloading of imports is one of the cocktail of factors which has caused the recent spike in spot rates.
Therefore any further increase in frontloading could see spot rates remain elevated for longer - placing shippers into a vicious circle.
Shippers could also consider shifting imports to the US West Coast in a reversal of what the market saw during Covid-19.
Some shippers have already made this switch due to restrictions in the Panama Canal and outbreak of conflict in the Red Sea, however they must think carefully before making this leap of faith.
Not least because increases in volumes into the US West Coast (as well as Mexico) could squeeze capacity and cause spot rates to rise.
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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 +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.
© 2024 Xeneta AS
Quarterly Market Average, 40' Container
Monthly Market Average, 40' Container
Quarterly Market Average, 40' Reefer HC
