The latest market data from Oslo’s Xeneta reveals that global long-term ocean freight rates have fallen by 24% since their peak in August 2022. Despite the fact that the decline during March was nominal – just 0.5% - this marks the seventh consecutive month of drops, with Xeneta forecasting greater pain for carriers when new contract negotiations for the US gather pace in April and May.
According to the monthly Xeneta Shipping Index (XSI®), which draws on crowd-sourced rates data from leading global shippers, March’s dip is the smallest of the year to date – compared to a 1% fall in February and a 13.3% month-on-month collapse in January. However, as Xeneta CEO Patrik Berglund stresses, this shouldn’t be seen as evidence of an improving market outlook.
“The principal reason for the relatively small decline is a lack of new contracts entering validity, rather than any strengthening of fundamentals,” he explains. “The major tendering season in Europe has passed, whereas it’s looming large on the horizon for the US market. The prospects of carriers being able to maintain their current long-term rates here look slim, to say the least.”
Berglund points out that, during the disruption of supply chains and strong demand that defined the pandemic, rates soared. In the US, the XSI® import sub-index climbed by 65% between the key negotiating period of April/May 2022.
2023, he notes, will be very different: “With the current market uncertainty, framed by weak demand and both macroeconomic and geopolitical concerns, carriers will be bracing themselves for rates to head in the opposite direction during this year’s tendering. We can expect to see some major falls and that will, we expect, drag the XSI® down more sharply in the months to come.”
This month’s XSI® shows a series of mixed rates performances across key regional trading corridors. In Europe, the European import sub-index showed a “substantial” 6% fall (although this is still 18% up year-on-year), while the import benchmark actually climbed, but only by 0.8%. Berglund points out that this remains 62% up against March 2022 and is almost a staggering three times higher than March 2020, before the global pandemic took hold.
In the Far East the export sub-index registered its eighth consecutive decline, sinking by 1.6% to leave rates 11% up year-on-year. The import benchmark mirrored its export counterpart, declining by 1.5% (up 7% against March last year).
Developments in the US skewed the overall picture, in part, as Berglund described, driven by the lack of new contracts signed this month. The US import sub-index climbed by a “counter-intuitive, given the market conditions” 7.1%. Here the Xeneta CEO also draws attention to the fact that import volumes are currently down 19% for the year - a fact that “doesn’t bode well” for carrier negotiations.
The XSI® US export benchmark maintained its level from February with no change. However, it is the only sub-index in the report that remains at a record high level, after recording a significant 16.5% increase last month.
Second Half Struggle
“The market is riven by unpredictability, so we need to continue looking to data to map developments,” Berglund says.
He continues: “Although the falls in rates will generate the headlines, we have to bear in mind that the carriers continue to make good money on containers tied to long-term contracts. In fact, the global XSI® remains a healthy 30.5% up year-on-year.
“However, looking at the hard negotiations that lie ahead, it’s very, very difficult to see how carriers can maintain that elevated level. Unless something drastic happens, I think the long-term contracts in the second half of the year will look very different to those that were valid at the start of 2023.”