Welcome to this recap of the monthly State of the Ocean Freight Market Webinar held on April 18th, 2023. Xeneta experts Emily Stausbøll and Erik Devetak provided insight into the impact of commercial alliances on contracted ocean freight rates, the likely influence of friendshoring on global rates, the Q2'23 container rates outlook, and spot and long-term ocean freight rate trends for the top trade lanes.
As many of you may already know, this trade route has been in the spotlight for a while now due to constant rate increases and record highs, followed by a steep fall over the last 12 months. However, the downward trend in rates is now showing signs of coming to an end, and a new twist is emerging on this trade. In this recap, we will delve deeper into these trends and explore what they mean for the industry.
Since the start of 2023, long-term markets have stabilized in the low $2 000s for container rates based on contracts Xeneta is seeing being signed. We see that the carriers are trying to introduce an improved General Rate Increase (GRI), with a 20% to 30% GRI coming in from both CMA and MSC, and other carriers seem to be following suit.
Carriers have given a lot of discounts over the last year, but they seem to have reached the position now where they are more comfortable with the long-term rates. Contracts being signed showing carriers are willing to play more on the spot market to push those rates up. This is especially interesting given that a lot of new longer-term contracts on the transpacific will come into effect on May 1st.
Demand is still poor, and volumes on the Far East to US West Coast trade have fallen by almost 25% in the first two months of this year, which is significant. However, the stabilization of prices on this trade, despite such a steep fall in demand, shows that carriers are managing to remove some capacity to secure their market.
It will be interesting to see how long the new GRI that came in mid-April can hold up and whether this gives carriers the confidence for future GRIs after May 1st.
Carriers are giving a statement to everyone that $1 800 is close to the bottom of where they will go. We have seen this type of message in the past, so we will need to see if it will stick this time. Volumes are still low, so carriers will have to keep a tight grasp on capacity management.
Blank sailings are coming down
Asia to US West Coast
There has been a significant drop in the number of blank sailings on the transpacific trade, declining from well over 30% two months ago to 7% in mid-April. This fall in the number of blank sailings can be attributed to carriers re-evaluating their schedules to reduce some services or by removing then completely. As a result, total capacity is rebalancing, reaching levels last seen in 2019.
Despite a weak economy, the operational model seems to be returning to normalcy, following three tumultuous years marked by instability, rate fluctuations, and a surge in blank sailings. The more stable capacity on the Far East to US West Coast trade could be a sign of forthcoming rate stability.
However, pitfalls remain and potential threats loom on the horizon. There have been warning signals in recent weeks stemming from labor negotiations at US West Coast ports, which add in the risk of industrial action and potential disruption.
Latin America dancing to a different beat
China Main to Santos
This is the first trade to show stability since the Covid pandemic and also the first where rates have started to increase. This shows that more efficient management of capacity has been achieved.
Latin America trade in general could be a big winner from the effects of the current and developing geopolitical situation, so it is one to watch carefully. Nearshoring, diversification of supply chains, resilience and the need for carbon emission reductions can also have a far-reaching effect for this region.
The trans-Pacific and Far East to North Europe hog the headlines, but the China to Santos trade numbers show the benefits from having such data as they can give an early lead and key information when coming to making tendering decisions or for negotiations.
Rates on the Santos trade have risen by 30% to 40% since the start of the year, so it is valuable to be on top of these shifts. Many in this region are in the short-term market or stuck on spot trades, so sudden jumps can have a major impact on budgets. We have got used to thousand-dollar jumps, but even though the market is becoming more stable here, movements of a couple of hundred dollars can still make a big difference.
Shifting sands having knock-on effects around the world
Logistics & Geopolitics
The major trans-Atlantic and trans-Pacific trades have developed quite differently over the last two years. The transpacific has performed poorly so far this year, but the transatlantic, while also down, has held up significantly better.
This difference can be attributed to various factors, including diversification and the current geopolitical situation. The reliance on goods from the Far East, particularly China, has been dominant for almost three decades, so any move towards diversification away from this region will have a significant impact.
Comparing what is happening with Far East air exports and European air exports to the US can be an early market indicator for oceans. Of course, goods being moved from the Far East to the US or from Europe to the US have key differences, with more retail from the Far East going to the US and more high-value/investment goods going to the US from Europe.
Investments are down almost as much as retail so it could be expected that European trade into the US would be affected as much as the transpacific. But we can see this is not the case. Clearly there is something else going on. Is diversification from the transpacific really happening? The reality is there are several factors affecting these numbers.
The US had a huge increase in the consumption of retail goods in the last couple of years and that demand has now fallen. Retail sales have been struggling as inflation is persisting in the US and this has caused a widening backlash on the transpacific than on the transatlantic.
Imports into the US from Vietnam and South-East Asian countries have also been increasing. On the carrier side we have seen a change in the size of new ships being ordered. There has been a shift from the mega ships of 22 000 to 24 000 TEU down to 15 000 to 16 000 TEU now being preferred. This is in large part because the smaller ships offer more flexibility and can get to the smaller ports in Vietnam and Cambodia, while still benefiting from economies of scale.
Uncertainty reflected in intra-Asian trades
A growing spread in long-term container rates between the China to Japan and China to Taiwan trades has become apparent since the start of the year, when the rates were almost equal. However, this increase is not mirrored in the spot market, where rates have gone up, but not to the same degree.
The growing disparity in rates can largely be attributed to the geopolitical risks associated with the China to Taiwan route. Carriers are factoring this risk into their prices for long-term contracts more heavily than for the spot market.
This trend raises a broader question about how geopolitics may impact the duration of contracts. As the geopolitical situation across the world becomes more uncertain and supply chain risks increase, longer-term deals may become less appealing.
Notably, prices on the China to Taiwan trade have reached levels similar to those of the transpacific trade at around $2 000. In the past, factory constraints have been the main drivers of rate spreads, but this has shifted as geopolitical factors now exert a stronger influence.
Watch this space
Going forward, we will see disruption from long-term decisions that will have a large influence on local markets. Having the best real-time data in the market from Xeneta will be increasingly important. It is worth paying attention to every region and watching closely as geopolitical factors will affect long-term decisions that will make an increasingly bigger difference in the years to come.