The sun is still shining on South American container shipping

“Our ships are still full – which is a good sign,” Rolf Habben Jansen, CEO of German shipping company Hapag-Lloyd, said during the company’s quarterly conference call earlier this month.

He was not referring to all of the company’s ships, only those serving Latin America. Most container ships worldwide have fallen back to pre-COVID-19 volumes and prices. Most ships in the world are not blocked. The South American trade is an exception, at least temporarily.

“It seems a bit more robust than some of the others,” said Habben Jansen. “We have secured a very significant part of our business on a contract basis. All in all we are happy with this trade.”

Freightos Spot Indexes

Spot rates initially fell in transpacific and Asia-Europe trades. The main transatlantic transport – Europe to the USA – lasted much longer than the transpacific or Asia-Europe, but it too has now largely normalized.

Tariff curves in global container traffic followed virtually the same pattern, but to different degrees and at different times. Ascents and descents did not occur simultaneously and were of different sizes.

The Europe-South America market (which is more of a backhaul market by volume) is recovering more slowly from the peak, so rates are still significantly higher than the pre-COVID-19 “normal”.

The Freightos Baltic Daily Index (FBX) for the west coast of Europe-South America estimated the average spot rate at $4,184 per FEU on Wednesday. That’s half the peak levels reached in mid-2022, but still 3.1 times higher than rates at this point in 2019, pre-COVID. This index has remained roughly unchanged over the past three months.

FBX’s East Coast Europe-South America spot valuation was $2,505 per FEU on Wednesday, more than double the pre-COVID-19 level. This route peaked much later than other routes. In February it was still US$ 4,000 per FEU.

Short-term and long-term Xeneta indices

Based in Norway, Xeneta tracks both short-term and long-term interest rates. It shows average short-term (spot) interest rates for northern Europe to the west coast of South America at $3,545 per FEU (as of Thursday), 2.1 times the rates at this point in 2019, pre-COVID.

Hapag-Lloyd’s Habben Jansen pointed to the importance of contract rates and Xeneta’s data highlights the positive side. Airlines secured high contract rates earlier this year, with long-term average rates on this route now at $4,846 per FEU, 3.1 times the pre-COVID-19 level and 37% higher than that average spot rates.

The spread between long-term and short-term interest rates has widened in recent weeks – the same dynamic seen in the Trans-Pacific from mid-2022.

Xeneta’s data shows a similar rate pattern, albeit to a lesser extent, in Northern Europe to East Coast South America trades.

That put short-term interest rates in this area at $2,357 per FEU on Thursday, double the average four years ago. It shows long-term interest rates averaging $2,622 per FEU, 2.5 times the average at this point in 2019. Long-term rates have been higher than short-term rates since January.

South America’s resilience to fares now extends beyond routes from Europe.

Current long-term interest rates from China to the west coast of South America average $3,728 per FEU, 2.4 times pre-COVID-19 levels, according to Xeneta data.

In the US market, both long-term and short-term interest rates from the east coast via the Panama Canal to the west coast of South America are still near peak levels, averaging $2,840 and $2,734 per FEU, respectively.

According to Xeneta data, long-term rates on this route are up 77% from May 2019, and short-term rates are up 52%.

Different import markets, different drivers

The drop in shipping costs for US imports is caused by high inventory overhangs due to a “bullwhip effect”. U.S. retail purchases surged during the pandemic, and importers overshot as consumption fell.

The dynamics of the COVID-era were quite different in developing countries like those in South America, where pandemic policies and consumption did not follow US patterns.
Hapag-Lloyd sees a long-term growth trend in the region and cites “increasing industrialization in emerging countries” and “additional growth opportunities in container shipping in 2023 through new economic and trade agreements”.

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