June 22, 2023 - Oslo, Norway - With the peak ocean freight cargo season approaching, the latest data from Oslo-based Xeneta shows mixed fortunes, and outlooks, for the two main Far East to Europe trade corridors.
Xeneta’s analysis reveals that shippers opting for the Far East – Mediterranean route are currently paying a spot rate premium of USD 1 150 per FEU compared to those choosing a North European option. There are also clear implications for long-term contracts, explains Peter Sand, Chief Analyst at Xeneta, across two very similar routes, experiencing very different levels of demand.
A new age of volatility
“There is an interesting new dynamic at work here,” Sand comments. “If we look back to the years from 2015 to mid-2021 there was a spread of less than USD 100 per FEU, with the Far East – Mediterranean route commanding the slight premium. However, the ‘second wave’ of covid introduced a new age of volatility, with the North Europe corridor racing to spot rates of 14 300 USD per FEU in Q4 2021 – almost USD 1 000 more than Mediterranean-bound containers.
“Just six months later it was all change again, with a huge Mediterranean premium of USD 2 300 per FEU. The spread then evaporated, then returned, and has seemingly steadied near the 1 000 USD mark. Long-term rates have also been prone to similar, dramatic fluctuations, with contracts from the Far East to North Europe currently around USD 1 600 per FEU – USD 625 less than contracted prices to the Mediterranean.
“It’s been a wild rates ride and, while things seem to have stabilized, it’ll be fascinating to watch further developments as the traditional Q3 peak season approaches.”
Demand drives disparity
Differing demand dynamics are, Sand points out, a key cause of the disparities between container costs. Looking at the first four months of 2023, imports from the Far East to North Europe fell by 8% (equating to a decline of 280,000 TEU), while demand grew for the East Mediterranean trade – a significant volume increase of 21.9%, 195,000 TEU – and into the West Mediterranean, a 2.3% ‘bump’.
“When we see a boost in demand that quickly translates into stronger spot prices, and the evidence of that is here for all to see,” he says. “The Mediterranean market also has higher spot rates than contracted prices, whereas the reverse is true for the North Europe route, and that also shows the relative strength of the former corridor.
“For further ‘health checks’ on the trades we can look at current blank sailing data. Here we see almost non-existent blankings into the Mediterranean, while between five and 13% of capacity is blanked from the Far East to North Europe.”
In addition to the rate developments, Sand also points to an evolving supply chain in 2023, with increasing export volumes into the Mediterranean originating in Japan, Taiwan, and South Korea, while volumes out of Southeast Asia decline.
Looking to the immediate future, and the aforementioned peak season, he is cautious of any talk around a ‘rates recovery’.
“Our data shows the Far East – Mediterranean route’s relative strength, but relative is the operative word here,” Sand concludes. “Looking at how rates have fallen from their peaks a year and a half ago, we see a dramatic transformation in fortunes. Yes, we’re seeing strong demand into the Mediterranean this year, but all that’s achieved is a slowing down of the rates decline, rather than a turnaround.
“Eyeing the state of the market, and the wider macroeconomic picture at present, it’s difficult to imagine a massive surge in freight rates for the peak season. In fact, time, and the data, will tell if we really have a peak season at all in the traditional sense – and that applies to both here, on these routes into Europe, and on other key corridors worldwide. We might see a period of peak concern, rather than peak earnings, for an increasingly embattled carrier industry.”