Xeneta Blog

Alert: Q4'17 Short-Term Market Rates Stumbling Below Contracted Rates

If you are starting up your ocean freight RFQs and preparing for the Asia-Europe negotiation period, listen carefully as this is extremely relevant as we close up on year end and enter the RFQ period.  Trans-Pacific shippers should also perk your ears. 

Xeneta data is seeing, for the first time ever since end of Q1 and beginning of Q2 2016, that the short-term rates are below the long-term rate market for the Asia-Europe trade. There are also signs of the same to just maybe happen on the trans-Pacific, if the trend continues.  

On April 1, 2016, for a 40ft container: 

  • market average short-term rate = USD 728
  • market average long-term rate = USD 900

 As of October 11, 2017, for a 40ft container: 

  • market average short-term rate = USD 1414
  • market average long-term rate = USD 1471

We first noticed the gap between short and long-term rates closing already in April 2017 and the summer months seeing that gap decrease even more. With the reports of overcapacity continuing to stream in for Q4 and this sudden stumble (albeit still small) of the short-term rates below the long-term market, we can't help but wonder if rates could be falling back down to Q2 2016 levels. 

It is a fact that long-term market rates follow the movement of the short-term market. Therefore, this current phenomenon should slap a "beware" sign on the industry. 

While it is a scary thought from the carrier side that just maybe the market can be turning for the worse, I can't stress enough that the market is in many cases still healthy for liners. But, as we all know things in this industry can change almost overnight. 

Trans-Pacific Not Immune to the Short-Term Market Rate Slump 

The Xeneta data for the China Main - North America West Coast main ports routes confirms a similar story to the Asia-Europe route. The gap between the market average rate in the short and long-term market for a 40ft container is closing as we enter Q4. 

On August 1, 2017: 

  • market average short-term rate = USD 1816
  • market average long-term rate = USD 1397

A difference of USD 419 between the two markets. 

On October 11, 2017:

  • market average short-term rate = USD 1568
  • market average long-term rate = USD 1395

A difference of USD 173 between the two markets. 

While the short-term market is still lying above, it's worth mentioning that in two months, the difference between short-term and long-term market average rates for the trans-Pacific has decreased by 60%. 

Cargo Buyers | Important Questions to Ask Yourself 

For BCOs working on RFQ's this and next quarter, it may be that the short-term market may become more favorable, just as it did in 2015. Here are some things to consider based on the data we are seeing in Xeneta: 

  1. Should and/or could we postpone on contacting and see how the market will play out through the rest of the year and consider action in Q2 2018? (Similar to last year.)
  2. Do we consider allocating more volume on the most volatile corridors to the short-term market to better position ourselves?
  1. Could we benefit from ”hedging” all or some of our volumes to quarterly or 6 month contracts – rather than the usual 12 month / annual?
  2. Should we consider including rate adjustments throughout the contract period – with floor/ceiling levels (for predictability) – all based on market movement events/criteria? 

As we soon close the year, it remains to be seen how the market will play out again. Will carriers implement harsher measures, play hard ball in negotiations and inject more blanks sailings to ensure a healthy market for themselves? 

Time will tell. Nonetheless, as cargo buyers, you should know how the market is moving right this minute and as you enter the RFQ period not only for Asia-Europe but later for the trans-Pacific, keep your eye on the data trends.

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