News / Drop in box shipping contract rates points to 'a recession of seismic proportions'

Long-term container shipping contracts have registered their first pricing decline since last October, prompting fears that the industry is heading towards “a recession of seismic proportions”.

According to figures published today by Xeneta, its crowd-sourced freight rate benchmarking platform XSI Public Indices saw a 0.5% decline in long-term contracted rates this month, following “a sustained period of growth”.

Year on year, the XSI was up 5.8% on March 2019 and up 2.2% from the beginning of this year, but with coronavirus lockdowns covering large swathes of global society, container supply chains are unlikely to avoid an impending economic recession.

“This is a small, yet significant, step in the wrong direction for carriers,” said Xeneta chief executive Patrik Berglund.

“The coronavirus pandemic is now causing disruption to trade and economic activity on an unprecedented scale. The container industry, operating on the front line of the global economy, is bracing itself to feel the full impact of that,” he added.

And the March figures have yet to reflect the full impact of the Covid-19 pandemic index: in Europe, the import benchmark declined by 1%, but the export index climbed 0.5%, and both are up year on year, 5.8% and 6.7% respectively.

The Far East import benchmark rate edged up 0.4%, but was down 11.6% year on year; while the export benchmark dropped 0.8%, but year on year was up 6.4%.

In the US, the import benchmark was up 1.3%, month on month, and 23.1% year on year, while the export benchmark declined 2.3%. However, it was up 2.6% year on year.

Nevertheless, the outlook is bleak – the World Bank yesterday said economic growth in the East Asia region would decline from last year’s 5.8% to between 2.1%, with possibly a 0.5% contraction in GDP this year, with manufacturing in Vietnam and Cambodia singled out to be particularly hit.

According to an analysis by German supply chain software provider Setlog, orders for 828 million garment items from Bangladesh factories have been cancelled by retailers since the onset of the pandemic – equating to €2.4bn ($2.6bn) in lost sales.

“The economic downturn and a widespread drop-off in consumer spending is unlikely to give way to rapid recovery,” Mr Berglund said. “This creates a hugely challenging environment for carriers, which will need to ensure adequate measures are taken to prevent a sustained drop in rates.

“And of course, the big question now is how long will the pandemic last? With the possibility of secondary outbreaks later in the year, it’s not clear if demand will, or indeed can, quickly recover, once a sense of ‘normality’ is resumed.

“This prolonged period of uncertainty and reduced demand will likely place downward pressure on both spot and contracted rates,” he added.

Xeneta’s XSI indices utilise over 160m data points and cover over 160,000 port-to-port pairings. The crowd-sourced rates data include leading global shippers such as Electrolux, Continental, Unilever, Lenovo, Nestlé, L’Oréal, and Thyssenkrupp.