CONTAINER RATES ALERT: no crisis for carriers as long-term contracted rates continue upward trajectory, but what awaits in 2021?
November 25, 2020 -- Oslo, Norway -- Leading container shipping companies are continuing to weather the pandemic storm, and its economic shockwaves, with success – pushing long-term contracted rates up for the second successive month. In the latest figures from Xeneta’s XSI® Public Indices report, which crowd sources real-time shipping rates from shippers worldwide, rates were seen to climb by 1.9% over November, building on a gain of 1.3% in October. The index is now 1.9% up year-on-year, with a 0.9% rise since the start of 2020.
Spot leads the way
XSI® utilizes over 200 million data points, with more than 160,000 port-to-port pairings, to deliver unique market intelligence. Throughout the pandemic it’s painted a picture confounding industry expectations, as carriers have deftly balanced supply and demand (removing tonnage, blanking sailings and altering routes) to not just protect rates, but boost them.
It’s a strategy that, observes Xeneta CEO Patrik Berglund, continues to pay dividends.
“Spot rates remain high across the board, with capacity being managed expertly, much to the humiliation of many within the shipper community,” he observes. “This is leading to reports that some carriers are actually trying to renegotiate already contracted rates to raise them in line with demand. Regardless of whether they do this or not, the strength of the spot market will undoubtedly impact when shippers execute their RFQs, and whether they will buy on the spot or contract market. This is good news for the carrier segment, which, as observers will be well aware, has endured some high-profile financial pain in recent years.”
That certainly isn’t the case for certain operators at present though, as evidenced by Maersk’s most recent financial report. Berglund explains:
“A soaring spot market, lower fuel costs and higher contracted rates have contributed to Maersk reporting a net profit in Q3 of $947m, up from $520m in the same period last year. That’s a stellar performance. In fact, in the time since its last forecast, the firm has upgraded its full-year earnings guidance to $8bn-$8.5bn, an increase of some $500m.
“The world’s largest carrier expects the final quarter of 2020 to be even stronger – a declaration of optimism that may occasion an altogether different mindset for shippers. However, we’ve all seen how quickly things can change this year, so it pays to be up to speed with the very latest market intelligence to get optimal value from contract negotiations. That’s equally true for all stakeholders in the shipping value chain.”
In the regional round-up of key trading routes for November, XSI® shows a lively mixture of strong and flat performances.
Imports on the European benchmark fell by a marginal 0.4%, while exports climbed by 0.3%. That leaves the indices down 2.7% and up 1.2% respectively seen against 2019. However, the Far East analysis showed more positive development, with imports jumping by 3.8% (2% up year-on-year) and exports rising 2.7% since October. The latter index has now surged 7.3% year-on-year and, if the growth continues, could reach an all-time high by the end of 2020.
US imports saw strong growth, climbing by 2.8%, while exports stayed flat. The former benchmark is now up 0.4% year-on-year, while the latter has fallen away by 7.7% since November 2019.
The next step?
“Although the strategies of the carriers have been successful across a very difficult year, it remains challenging to predict what lies ahead,” Berglund opines. “Shippers have expressed dismay at what some see as opportunistic hikes, while there’s also word that Beijing may be pressuring lines in an attempt to exert control over rising rates and support trade objectives. So, although the carriers are ‘in the driving seat’ at present, will it stay that way?
“Looking into 2021, early signs show a lack of substantial uptick on the long-term contract market. Here at Xeneta we’ve been analyzing first and second round tender/RFQ bids and see notable differences across our shipper customers. Could some of the carriers be tempted to try and seize the beneficial market conditions to win more volumes and increase their market share? Time will tell.”
He concludes: “It’ll be fascinating to see how the market develops as we come to the end of a year that few – in this segment and beyond – are ever likely to forget. At this point, we’re recommending a cautious approach from shippers, who may benefit from not locking themselves exclusively into the contract market. They need to maintain flexibility in their procurement strategies, waiting to see how the early part of the year plays out.”
Companies participating in Oslo-based Xeneta’s crowd-sourced ocean and air freight rate benchmarking and market analytics platform include names such as ABB, Electrolux, Continental, Unilever, Lenovo, Nestle, L’Oréal, Thyssenkrupp, Volvo Group and John Deere, amongst others.