Date: Thursday, June 1st, 2023
The ocean freight industry saw a slump in global long-term rates of unprecedented proportions in May, as the contracted cost of shipping containers dived by 27.5%, according to the index developed by freight rate platform Xeneta.
The fall in the Xeneta Shipping Index (XSI) marks the ninth consecutive month of rate drops, and is the largest-ever monthly fall recorded on the five-year-old XSI.
“If industry observers were left wondering just how bad it could get for carriers after the 10% fall in long-term rates seen in April, here’s the answer,” commented Patrik Berglund, CEO of Oslo-based Xeneta.
“Monthly declines have become the ‘new normal’ at present, but this is a collapse,” Berglund said, explaining the main driver for the drop was the fact that May marks the point when existing 12-month contracts in the US come to a conclusion and new agreements come into force.
“These reflect the reality of today’s subdued markets, so are priced much, much lower than their predecessors. The impact of that on the wider industry is here for all to see,” Berglund said.
In its latest quarterly report, Danish carrier Maersk said that liners face a “radically changed business environment…it’s not like the macroeconomic backdrop points to a lot of growth.” Other Q1 results presentations from global liners have been similarly downcast on prospects.
“With demand for containerised exports out of the Far East falling, and a lack of hunger for imports into the US, we have something of a retreat in the two forces that traditionally drive global trade growth,” Xeneta’s Berglund noted. “There’s very little the carriers can do to protect their precious long-term rates in this kind of climate, especially when we consider that the vessels ordered during the pandemic boom are now starting to swell overall industry capacity.”
A new report into container shipping published by shipping organisation BIMCO this week forecast a significant weakening of the fleet supply/demand balance during 2023 with some recovery in 2024. Throughout the period, the balance will remain weaker than in 2019, BIMCO suggested.
Liner veteran John McCown, whose firm Blue Alpha Capital publishes quarterly container earnings reports, said this week he expects the capacity management tool of blanking or cancelling sailings to pick up in the coming months as liners battle the worsening economic environment.