The container shipping industry endured a torrid time in April, with global long-term ocean freight rates diving 10.6%, according to the latest data from Oslo’s Xeneta.
A raft of newly negotiated contracts, with prices reflecting the low market demand and high capacity, dragged rates down across the board – with all regional trade lanes registering month-on-month declines. Xeneta’s Shipping Index (XSI®), which crowd-sources container rates data to track real-time developments, shows prices have now slumped 13.6% in 2023 alone.
Shifting sentiment
“This is now the eighth consecutive month of falls and, at over 10%, certainly one of the most noteworthy,” comments Xeneta CEO Patrik Berglund. “This demonstrates, as explained at the time, that March’s dip of just 0.5% was somewhat misleading. It was basically the quiet before the storm as new contracts, at significantly lower prices, were waiting to take effect in April. We can now see the dramatic impact of that.”
He continues: “The carriers are in a tight spot, with global economic and geopolitical factors hitting demand and putting shippers in the driving seat when it comes to long-term negotiations. That said, year-on-year rates are still 5% up. But, to demonstrate the sea change in market sentiment here, they were up a huge 118.5% between April 2021 and April 2022. So, given the fact that fundamentals remain weak, it looks unlikely that year-on-year growth will be maintained much longer. We can very likely expect further falls ahead.”
Turning down the volume
April’s XSI® makes for grim reading for carriers. After over two years of spectacular rates growth, they’re now watching both volumes and margins steadily dissolve. Every one of XSI®’s regional sub-indices reflected that reality.
In Europe, the import XSI registered its largest ever decline, with long-term rates falling by 19.5% month-on-month. The story wasn’t much better for exports, with the sub-index dropping 15.8%. Both inbound and outbound container volumes for the region have dried up in 2023, with outbound falling 10%, while inbound volumes sank 9.1% in the first two months alone (February saw the lowest import volumes in three years for the trade).
Double digit dips
The Far East corridors fared no better. The export sub-index dropped 10% from March, having now shed 18.2% of its value since the start of the year. Carriers are working hard to reduce capacity, through a mixture of removing services and blanking sailings, which is helping elevate the average filling factor (from 84% in Q4 2022 to 87% in Q1 2023 for the Far East to Europe, the US and the East Coast of South America) but failing to arrest rates falls. Volumes, meanwhile, have dropped by 14%.
Far East import rates also slipped through April, with the backhaul sub-index ending the month 15.5% down.
Predicting problems
It was a tale of two trades in the US. The import XSI saw the smallest month-on-month decrease of all the regional sub-indices, dipping by 1.5%. However, with 1 May looming as the date when a raft of new contracts enter validity, this minor shift may mask true long-term contracted reality. As such, Berglund expects next month’s falls to “accelerate”. However, he also notes that spot rates actually increased into both US coasts in April, as carriers successfully pushed through GRIs.
In contrast to US imports, the XSI for US exports saw the largest month-on-month drop of all the sub-indices, collapsing 18.9%. This is now the trade with the lowest levels of increase since January 2017.
“The picture is complex,” Berglund concludes, “ and, as with wider market drivers and geopolitical maneuvering, problematic to predict. But it’s difficult to see signs of upswing on the horizon in Q2 as we leave behind a challenging Q1. The carriers look to have a fight on their hands if they hope to protect their all-important long-term contracted rates. Our data will show just how well they manage in the months to come.”
