Shock for carriers as spot rates fall below long-term contract prices
Spot container freight rates on the main east-west deepsea headhaul trades continued to edge downwards ...
While long-term container contract rates from Asia continue to advance, ocean carriers have been busy offering significant discounts on spot rates from China this week, as cargo availability temporarily dries up due to Covid lockdown restrictions.
However, the momentum in long-term contract sign-ups at significantly higher rates is underpinning the huge first-quarter profits being reported by carriers.
According to Xeneta’s crowd-sourced ocean freight rate data, April saw a further 11% jump in its index for long-term contract rates, for a year-on-year increase of 110%.
The freight rate benchmarking platform’s XSI index recorded a 9% increase in Asia-US headhaul contract rates during the month. However, contract rate increases on that lane soared by 17% as shippers scrambled to secure their supply chains ahead of the peak season.
Xeneta said contract rates on the Asia-Europe route had increased by 25% since the beginning of the year. CEO Patrik Berglund said: “Yet again we see the carrier community sitting pretty when it comes to long-term contract rate negotiation.
“They are, quite frankly, reaping huge rewards from a red-hot market. It’s a position of power the carriers have no desire to relinquish.”
Another factor in the recent rush to procure contracts with carriers, as suggested by some of The Loadstar’s forwarding community contacts, is the rush of cargo that will follow the eventual easing of the strict lockdowns in China.
“We saw what happened two years ago after the lockdowns in China ended and demand surged, we couldn’t buy a slot at any price for weeks,” said the UK-based contact.
“If we can get orders moved, then we will certainly take advantage of the current spot discounts, but we are fully aware that we will need either our own contract, or perhaps we will join with another NVOCC to secure space for the peak season,” he said.
For shippers that are able to get their cargo moved, there were some big discounts being offered for China-North Europe shipments this week. For example, a number of China-based forwarders were offering discounts from Ningbo, Yantian and Qingdao to Rotterdam, Hamburg and Gdansk, with rates at between $8,000 and $9,500 for a 40ft high-cube for shipment on a mid-May-sailing Ocean Alliance vessel.
These rates are below the ‘market’ rates indicated by the spot indices, with for instance, Drewry’s WCI North Europe component at $10,199 per 40ft, having fallen 2% on the week, for a decline of around 25% since the beginning of February.
Meanwhile, on the transpacific, there was no evidence of any significant rate discounting by carriers this week, with the Freightos Baltic Index (FBX) US west and east coast readings stable, at $15,552 and $17,148 ,respectively, per 40ft.
Commenting on the lack of a significant drop in transpacific spot rates compared with Europe, Judah Levine, head of research at Freightos, said it was most likely due to “the strength of underlying demand from the US, including some pull-forward of peak season volumes”.