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State of the Ocean Freight Market | Is the peak season glass half full or half empty?

Explore the uncertainties surrounding the upcoming peak season, while analyzing some key trade lanes to highlight current ocean freight rate trends.

In this month’s exclusive State of the Ocean Market Webinar from Xeneta, Chief Shipping Analyst, Peter Sand, and Market Analyst, Emily Stausbøll, tackle the uncertainties surrounding the upcoming peak season, while they also take a trip around some key trades to highlight current ocean freight rate trends.

Other tasty tidbits include a timely look at Xeneta’s Carbon Emissions Index, which can provide crucial data on carrier performance, as well as an update on the ongoing Panama Canal squeeze.

Opening the toolbox

Experts Peter and Emily begin by flagging up some key trade lanes and taking the opportunity to showcase some features from Xeneta’s market leading benchmarking and market analytics platform for ocean freight rates.

Their focus is not only on the peak season as they also look at volatility in the secondary trades, where they believe there are significant benefits to be gained when armed with key market insights.

Diverging paths

Looking at contracts signed on the Far East to Mediterranean trade over the last 90 days, the data shows rates, while down on the same period a year ago, are holding up with an average of $2300 on the spot market and the same on the long-term market. These rates are currently expensive when compared to those on the Far East to North Europe trade, when the two would normally be much closer.

There are no real fundamentals to justify this discrepancy, but a clue can be seen in container trade statistics over the last five months, showing an overall move for the Far East to Europe into positive territory since the same period last year. But, there is a split in demand between cargo destined for North Europe or the Mediterranean.

Defying gravity

These factors can also be seen on the Far East to South America East Coast, where a very healthy level of demand is keeping rates buoyant. Spot rates have gone up by more than 50% in less than three months in a jump from $2000 to more than $3000. Carriers have reacted in a similar way to the Far East to Mediterranean by deploying more capacity, but rates on this trade look likely to stay strong into the third quarter, and it is one of the few that could see a decent peak season, unlike the main trades.

What goes up must come down at some point and North Europe to the US East Coast demonstrates this as it is finally showing signs its own gravity defying act is coming to an end. Carriers moved extra tonnage here as it was more profitable but the balancing act has tipped, though Peter Sand also highlights an increase in congestion currently affecting the US East Coast.

Global trends across the spot and long-term markets

Looking at the global trends for a selection of trade lanes there are some interesting developments. Spot rates are higher on the Far East to US East Coast than they were three months ago, while long-term rates on this trade are trending down. Using Xeneta’s customizable platform to assess exposure to the market, it is quick and easy to zone in on a variety of trades and see fluctuations, such as a jump of 8% in the spot rate for the Far East to South American East Coast, while long-term rates have fallen by 3%. Diving down into examples on the mid low or mid high market can also give some choice nuggets of information on current trends.

Carbon footprints

Another click of the button on Xeneta’s platform can open a tab showing the Carbon Emissions Index for almost 50 trade lanes across the world, and how each carrier compares when it comes to emissions performance. This is increasingly relevant as the IMO tightens regulations further as the shipping industry heads towards a net zero carbon emissions target by 2050.

The figures show there is a long way to go as some of the top trades have not improved their carbon efficiency since 2018. Xeneta’s global Carbon Emissions Index can give shippers the steer on the most responsible carriers and the spread in performance across different trade lanes. 

When the US catches a cold…

Very poor demand in the US is dragging on the global growth rate with a 20% drop in imports since last year. High levels of inventory in the US, particularly in the wholesale industry, are weighing heavily even as retail sales have increased slightly. As a result, we are not expecting a peak season in its normal form, when volumes could be expected to grow with freight rates following suit.

The key US inventory to sales ratio has been climbing in recent months, setting aside a small fall in March, and this is a clear indication that wholesalers have a lot of goods on hand. A further factor is inflation. The overall inflation rate is coming down, and especially in the US, but inflation is still higher there than the growth rate for retail sales, so the volume of sales is slightly down from last year.

This sluggish demand in the US will be felt across the peak season globally. For some it can be a glass half full, or glass half empty scenario, but there is no doubt circumstances mean it is a challenging market right now.

Panama Canal squeeze

Something extra to be aware of is the extended transit times currently affecting goods being transported through the Panama Canal. This has of course been a developing situation over the last few months but the knock-ons as surcharges take a greater effect will spread. So far, the big changes are only affecting transit times. For example, the time taken to cross the Panamax northbound has grown from one day at the beginning of June to 10-11 days last week. These delays also affect traffic and goods going in the opposite direction.

There has not been a big change to freight rates yet, but the cost of extra surcharges will start to be felt more widely as Panamax lock draft restrictions, down from 50 ft to 44 ft, will continue to put the squeeze on carriers.

Hungry for more info 

If you're hungry for knowledge and want to stay ahead of the game, take a look at the full webinar and get key insights from Xeneta’s experts. The full State of the Ocean Market webinar recap unlocks more of the insights that can empower critical decision-making based on Xeneta’s market-leading, crowdsourced benchmarking and market analytics platform, enabling the most professional freight procurement strategies.

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