Container shipping spot rates remain high above levels considered normal in pre-pandemic times, but on most trades, they are falling compared to their record highs at the end of last year and the start of 2022.
Shippers on the major trades are seeing spot rates and premium surcharges fall in many trades. Getting capacity allocations is becoming easier, and carriers are starting to adjust to no longer being all-mighty.
However, freight rates are still high. Global spending on shipping will be record high this year, and congestion and delays continue to plague shippers on several major trades.
On top of this, China’s continued zero-COVID policy and the threat of disruptions to the US West Coast (due to labor negotiations) threaten to send another shock through the market.
Behind the softening spot market are falling container volumes, which were down by 2.4% on a global basis in the first four months of the year.
On the world's largest trade, namely intra-Asia, container volumes in the first four months of the year are up by 1.6%, which is a considerable slowdown on this trade compared to 9.1% growth in 2021.
The interconnectedness of Far Eastern supply chains means that slowing volumes on this trade are evidence of the region's slowdown in manufacturing and production.
This is largely due to the lockdowns in China, leaving intermediate goods stranded and slowing processes.
Same as problems in supply, demand from outside the region is also slowing, with intra-Asian volumes an excellent early indicator for exports out of the region in the coming months.
In the first four months of the year, exports out of the Far East are down by 2.0%. This is also why the gradual re-opening of Shanghai is not expected to affect container shipping demand hugely.
Some of the jams in manufacturing around the region will be cleared as goods start moving again, but muted global demand for manufactured goods will limit the bounce back.
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Almost 60% of global container volumes are exported from a port in the Far East. There are six trades out of the Far East which have annual volumes above 6 million tonnes, and these alone account for 43% of total global container volumes and 75% of total Far Eastern exports.
Three of these are intra-Asian trades: going to China, North and South East Asia, while the other three are North Europe and the two US coasts.
On the long-term market, the average rate out of the Far East has continued to rise, up by USD 600 per FEU since January on 1 June, and fast closing in on the spot market, something that has already happened on several of the major global trades. Of these top 6 trades out of the Far East, four of them have average long-term rates above those on the spot market, split evenly between intra-regional and longer haul trades.
Looking at all valid long-term contracts, rather than just those signed in the past three months, these are record high – the global XSI index rose to 383 points in May, as many older long-term contracts at lower levels expired, to be replaced by new ones at much higher rates.
Many shippers witnessing the falling spot market and hearing from within their company and the broader industry about falling freight rates, will be looking at their long-term contracts to see how, if at all, they can find a way to benefit from the situation.
Long-term rates will be much slower to fall than those on the short-term market, but shippers will experience this in different ways.
Those with three-month contracts will have the chance to negotiate lower rates on a regular basis, allowing them to benefit quicker from a falling market.
On the other hand, those on 12-month contracts will have to wait much longer to see lower rates unless they can renegotiate their current contract.
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Behind the falling number of containers being shipped is the broader global economy and many countries moving towards a post-pandemic reality.
The IMF has reduced its growth forecast for 2022 to 3.6%, largely due to higher inflation.
Retail sales have been up by 9.6% since the start of the year, indicating continued strong growth. However, splitting this between grocery and gasoline stores, vehicle sales, and everything else shows the shift in spending.
Looking ahead to the rest of the year, retail sales, especially when adjusted for inflation, are unlikely to rise enough to drive a rebounding demand for containerized goods imports.
The economy in the European Union is much less dependent on consumer spending than the US economy, but here the cost-of-living crisis is being felt.
In March, retail sales in the European Union were up only 1.7% (and just 0.8% in the eurozone), which with inflation explains the 2.3% fall in total container imports to Europe in the first four months of the year.
Slowing consumer demand for goods typically brought in by containers is also being met by issues in the world’s largest producer.
The manufacturing PMI in China has been below 50, which signals month-on-month contraction since March, though the pace of decline slowed in June: that is to say May was worse than April, but ‘less worse’ than April as compared to March. Looking at the index on new export orders, this has been below 50, so declining month-on-month, for over a year.
The big question will be when, and how fast, COVID restrictions will be removed, but as parts of Shanghai return to lockdown after just a brief period of easing, it doesn’t seem a change of policy is just round the corner.
A large number of ships are still stuck in congestion around the world, though the queues are moving around due to local disruptions and new import patterns.
Globally, schedule reliability has stabilized around 35% this year, not yet showing considerable signs of improvement. However, the average delay of late ships fell in April, down to 6.4 days.
Despite the overall falling trend, charter rates remain far above breakeven levels, even for the oldest, most inefficient ships with the highest voyage costs.
Ship-owners wouldn’t choose to send a ship to be demolished if they can continue to earn money on it.
This explains the total lack of demolition this year. Charter rates need to come much further down before it is only the ships that really can’t sail anymore start to be demolished.
The global XSI ® jumped by an unprecedented 30.1% in May to 383.12 points. The month-on-month rise is the largest on record and takes the benchmark to 150.6% higher than this time last year.
Since the end of 2021, the index has appreciated by 55.0%.In May the global XSI ® registered 383.12 points, its highest ever level and 150.6% higher than this time last year.
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