Spot the difference: mixed results across main trades as carriers work to balance demand and capacity to protect rates

Carriers are resorting to removing significant swathes of capacity on key trade routes with the aim of protecting vulnerable spot rates in the face of weak demand. The success of those strategies, reveals Oslo-based Xeneta, has been mixed.

Rates resolve

According to Xeneta, which crowd-sources the latest ocean and air freight rate data from key shippers and suppliers worldwide, some 517,300 TEU – or 25% of the initial capacity offering – has been removed from the Far East to US West Coast corridor over the last five weeks.

“That’s a total of 63 sailings,” comments Patrik Berglund, Xeneta CEO, “a huge amount. After such a protracted period of strong fundamentals for the industry, this shows both a softening of the demand picture, as well as a strengthening of carrier resolve to protect the healthy spot rates which have served them so well.

“It’s a strategy that, for the West Coast routes at least, appears to be paying dividends.”

Fluctuating fortunes

Berglund points out that spot rates on this trade have remained steady across the period 4 April to 8 May, despite the fact that this route experienced the largest decline in demand in Q1, falling by 3.5% year-on-year. There was actually a marginal increase of USD 30 across the window, with an eventual rate of USD 9 250 per FEU recorded on 8 May.

The other main corridors – Far East to US East Coast and Far East to North Europe – removed less capacity and, it appears, have paid the price.

“The Far East to North Europe trade had the largest fall in spot freight rates, down USD 770 per FEU,” reveals Berglund. “Although a significant number of sailings were blanked – stripping away 13% of capacity (223 000 TEUs) – this was clearly not enough to counteract  weak demand. We should also note that capacity this year has been higher than in 2021, and this obviously has a knock-on effect in a softer market.”

Capacity counts

Healthy demand on the Far East to US East Coast trade led to the smallest number of blanked sailings, amounting to 263 500 TEUs, or 10% of capacity.

“Volumes on this trade are at a record high,” says Berglund, adding that the initial catalyst for this was the switch away from West Coast ports to avoid chronic congestion. “However, the capacity here is now so significant that spot rates are under pressure, with a fall of USD 380 in the five weeks to 8 May. That said, current spot rates of USD 11 600 per FEU are certainly robust, but will they stay that way?”

He concludes: “The only way to know for sure is to keep up to date with the very latest market intelligence. Do that and you should be in a strong position to achieve optimal value in negotiations.”

Xeneta’s platform compiles the latest ocean and air freight rate data aggregated worldwide to deliver unique market insights. Companies participating in the benchmarking and market analytics platform include names such as ABB, Electrolux, Continental, Unilever, Nestle, L’Oréal, Thyssenkrupp, Volvo Group and John Deere, amongst others.