XSI® Global
Ominous signs point to a brutal 2024 for carriers
The rate of decline on the Global XSI® is accelerating and painting a worrying picture for carriers who are already feeling financial pain.
The index fell by 4.1% in November to stand at 158.5 points. This is 62.3% lower than November 2022.
This development could be hugely concerning for carriers.
The biggest shift on the XSI® is not expected until Q1 2024, which is traditionally when the majority of long term contracts enter validity. The new agreements for next year will no doubt be at significantly lower rates, but until then, it could be assumed carriers would be offered some level of protection through existing long term contracts which were agreed back when rates were much higher.
Financial results for some carriers in Q3 suggests that, if they have been afforded any level of protection through the older long-term contracts, it has only helped them to post significant losses rather than catastrophic ones.
For example, Maersk Ocean (excluding terminals/logistics services) relies heavily on the long term market and should perhaps be less impacted by the collapse in spot rates during 2023. The fact Maersk still posted an EBIT loss of USD 27m in Q3 suggests there could be serious problems down the line.
Maersk are not alone either with four of the big carriers losing money in Q3, including ZIM, which posted losses of USD 213m in Q3. However, ZIM’s financial results are perhaps to be more expected due to a higher exposure to the spot market.
While the XSI® is down from the same period in 2022, long term rates are still solid and remain up by 39.5% compared to November 2020. The fact this has still not been enough for some of the biggest ocean liner shipping companies to deliver a positive operating margin in Q3 highlights just how tough 2024 will be for carriers.
Part of the reason for this rapid descent into operating losses is that, despite long term contracts being valid, they are not being used. Shippers are instead able to move their volumes using the much cheaper spot market.
Looking ahead, the average rate earned per container will fall further as new long term contracts come into force and carriers will face additional pressure through increasing operating costs on many trades.
For example, ongoing and heightening restrictions in the Panama Canal, a 15% increase in the cost of transiting the Suez Canal and environmental regulations such as the EU ETS. Given the financial pressure carriers are already under, only successful capacity management will prevent even bigger losses in 2024.
