Is the rate erosion of container shipping over? Ship’s crew

From Mike Wackel (The Loading Star) –

Whether container spot prices have bottomed is in doubt, but on key transpacific and Asia-Europe trade routes indices are clearly showing that the fall in prices is starting to ease from the precipitous highs of a year ago.

The average spot rate from Asia to Northern Europe appears to be settling at around $1,450-$1,550 per feu, with Xeneta’s XSI component, for example, down just 1% on the week to $1,478 per 40 feet.

And for Mediterranean ports, Drewry’s WCI was also down just 1% at an average spot price of $2,256 per 40 feet.

The same pattern was observed across the transpacific, with spot rates from Asia to the US West Coast hovering around $1,000 per 40 feet. For example, the value of the Freightos Baltic Index (FBX) declined slightly this week to $1,030, while the US East Coast FBX component fell 2% to $2,215.

BCOs on the transpacific have some important decisions to make over the coming weeks about what percentage of their volume they are willing to commit to carrier contracts.

A live online survey by Flexport yesterday found around a third of transpacific shippers were not planning to sign firm contracts this year, suggesting a much larger than usual percentage intend to play the spot market.

Additionally, some BCOs are opting for the index-linked contracts promoted by carriers, which protect shipping lines from under-pricing when freight rates eventually recover.

Jon Monroe of Jon Monroe Consulting said airlines “will most likely reject a long-term contract at today’s spot rate”.

Indeed, Israeli airline Zim said during this week’s earnings conference call that it had set a limit on how low it was willing to go in its collective bargaining. CFO Xavier Destriau said if Zim doesn’t reach a “natural balance” on contract rates, “we will stop sailing”. He added: “And if we stop sailing, it could have a drastic impact on customers’ ability to secure their supply chains.”

In fact, carriers now appear poised to take radical action to restructure their networks to cope with reduced demand, as evidenced this week by the 2M Alliance’s weeding out of the AE1/Shogun Loop Asia-Northern Europe after the service was suspended for continuous services weeks.

Mr Monroe says sub-$1,000 tariffs from China to the US West Coast “are not good for anyone”, suggesting that if these containers are under-tapped, they will be the last to be loaded when the next capacity crunch hits.

He recommends BCOs sign deals with airlines “at a reasonable price,” which he says should be between $1,500 and $2,000 per 40 feet for the West Coast.

Elsewhere, the paradox of the transatlantic trade lane continues, with spot rates still defying predictions of a collapse, despite reports of 60% capacity utilization on the western route. The WCI from Northern Europe to the US East Coast remained stubbornly above $5,000 per 40 feet this week, down just 1% to $5,326 per 40 feet.

It remains to be seen how long transatlantic trade can continue with the separation of supply and demand.

(c) Copyright Thomson Reuters 2023.

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