Long-term contracted ocean freight rates continued their ascent through June, although not with the dizzying trajectory witnessed in recent months. May’s 9% surge in prices eased back to a 2.3% gain in June. However, the latest figures, detailed in Xeneta’s Long-Term XSI® Public Indices, mean rates now stand a staggering 39.2% up year-on-year (having risen 37.7% in 2021 alone). Furthermore, notes Oslo-based Xeneta, there appears to be little relief on the horizon for a financially battered shipper community.

Astronomical gains

Xeneta crowd sources real-time rates data from global shippers and freight forwarders to paint a detailed analytical picture of the latest market developments. Insights from the team show a year that, so far, is like no other, with historical high rates built on a platform of strong demand, a lack of equipment and capacity, port congestion, and individual carrier firms and alliances that, it appears, are very much in the driving seat.

“It can almost be difficult to keep a sense of perspective here,” comments Xeneta CEO Patrik Berglund. “Seen in the context of 2021, a 2.3% gain appears only moderate, but in any other month, in any other year, this is a very strong performance for the carriers.

“We have witnessed truly astronomical increases, due to a very complex combination of factors – from the way coronavirus has both disrupted supply and driven demand, through to unforeseen events, such as the blockage of the Suez Canal. And all the time the carriers have managed routes and capacity to maintain a position of unparalleled strength in negotiations. It is, without doubt, a difficult time to be a shipper.”

Widespread impact

And, he notes, there’s little relief in sight. Carriers are making bold moves to increase their fleets, but, for the most part, these are long-term decisions rather than short-term capacity injections. For example, HMM has just announced the ordering of twelve 13,000 TEU vessels, for $1.57bn, which will take the capacity of the Korean line past 1m slots, while Hapag-Lloyd has ordered six 23,500 TEU ships, with delivery expected from 2024.

In the meantime, the supply chain is buckling under the pressure. As Berglund explains: “Ports in the US are facing new levels of congestion, causing huge delays in shipments and inventory shortages for retailers. In fact, a recent survey by the National Retail Federation (NRF) found that 97% of members had been impacted by port and shipping delays, while President Biden has announced the creation of a Supply Chain Disruptions Task Force. And, looking further afield, let’s not forget Yantian and Shenzhen, which were hit by COVID a couple of weeks ago making it even more difficult to balance supply and demand.”

Tough market

“Of course, in a connected industry the ripple-effects of disruption are everywhere. In Europe, we hear of vessels from Asia being delayed by up to three weeks, while some carriers are now omitting selected port calls all together, much to the chagrin of shippers. 2M recently announced it would not be stopping at Rotterdam on its Asia-North Europe loops for the next seven weeks, with THE Alliance following suit. Maersk and MSC, meanwhile, are skipping Hamburg on their AE7/Condor loop for another four weeks due to ongoing congestion.

“So, shippers are left with the unpalatable – some would argue unsustainable – combination of deteriorating reliability and climbing spot and contract rates. It’s exceptionally tough for shippers to navigate the market right now, as the delta between short and contract rates continues to grow. Carriers unquestionably have the upper hand and are in a strong position to exploit the budgets of big volume shippers.

“We should all brace ourselves for the carriers’ and forwarders’ Q2 financials. It will be a joyful moment for the sellers, but painful for the rest of the market. However, it’s universally positive that it gives the seller community an opportunity to invest those gains in more sustainable, eco-friendly infrastructure. We hope they seize it.”

Regional analysis

The XSI® intelligence, gleaned from over 280 million data points, with more than 160,000 port-to-port pairings, demonstrates a month of overall rates increases, with one or two regional exceptions.

In Europe, imports on the XSI ® declined for the first time in seven months, with a 4.2% fall. However, the index remains a breathtaking 48.1% up year-on-year. Exports rose 1.9% and stand 18.1% higher than June 2020. The Far East import benchmark climbed by 1.5%, up 27.3% year-on-year, with exports also gaining, edging up a further 2% to an astonishing 67.8% above this time last year. It was a tale of two indices in the US, with imports surging 9.3% in June (36.9% up year-on-year), while exports fell 2%. This is the only index down against June 2020, with a drop of 2.1% (although it has risen 6.6% in 2021 so far).

A question of control

“It’ll be fascinating to see what comes next,” concludes Berglund. “The key question is how do shippers try and regain a sense of control? We’ve already seen the arrival of CULines, supported by purchasing association XSTAFF, as an alternative solution, and June saw the news that Home Depot in the US was making the audacious move of chartering its own vessel to secure a more stable, predictable supply chain. Not everyone is in a position to do this, of course, but it’s a very interesting development as shippers desperately seek some short-term relief.

“The XSI® will keep us informed of whether it’s possible to achieve that in the months to come; helping steer negotiations and allowing users to get optimal value for their businesses.”

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.