Contract rate fall slows, rough sailing expected

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Contract rate fall slows
Freightos says hopes for a rebound in ocean demand in time for the peak season may have dampened a bit this week as major retailers like Nike and Adidas reported that they are still coping with inventory surpluses built up over the first half of 2022. Photo from CMA CGM
  • Long-term ocean freight rates fell 0.5% in March, but Xeneta warns of turbulent times ahead
  • Xeneta CEO Patrik Berglund says the modest rate declines in February and March are not a sign of an improving market outlook just yet
  • Hopes for a rebound in shipping demand in time for the peak season likely dampened as major retailers like Nike and Adidas report inventory surpluses from last year

Global long-term contract rate fall slowed to 0.5% month on month as March drew to a close, the latest Xeneta Shipping Index (XSI®) shows, the least drastic this year so far after a 1% fall in February and 13.3% drop in January, but the company’s chief executive warns more of turbulent times ahead.

The latest drop represents a staggering 24% drop from its pinnacle in August 2022, and Xeneta CEO Patrik Berglund says the modest rate declines in February and March are not a sign of an improving market outlook just yet. He cautions that they are primarily due to the absence of new valid contracts.

He said during the disruption of supply chains and strong demand that defined the pandemic, rates soared. In the US, the XSI® import sub-index surged 65% in the key negotiating period of April-May 2022.

“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…drag the XSI® down more sharply in the months to come,” Berglund said.

The XSI® sub-index for US imports gained 7.1% m-o-m, making up for the January and February dips. In March, this index stood at 458.37 points. The index for US exports remained flat from February at 179.12 points, the lowest among the sub-indices, but still up from starting point in January 2017.

The XSI® sub-index for European imports fell 6.0% between February and March, landing at 324.13 points, the lowest for the index since March last year, but represents an 18.0% increase. Unlike European imports, the index for European exports rose 0.8% to 351.57 points in March.

The index for Far East imports fell 188.77 points in March, down 1.5% from February. The index for Far East exports registered its eighth month-on-month decline in a row. It fell to 407.17 points, down 1.6% from February and its lowest level since April last year.

Meanwhile, online trading platform Freightos says hopes for a rebound in ocean demand in time for the peak season may have dampened a bit this week as major retailers like Nike and Adidas reported that they are still coping with inventory surpluses built up over the first half of 2022.

Shipping rates remained buoyant early last year as US retailers, fearful of not receiving their holiday season orders on time due to port congestion, advanced their autumn orders and built up inventory that was overtaken by weak demand due to inflation, global recession fears and likely labor action in US West Coast ports.

Judah Levine, head of research at Freightos, said other importers are taking drastic inventory-reduction measures in response. He said the longer inventories remain high, the longer new orders, ocean volumes and freight rates will remain deflated.

Transpacific ocean rates dipped slightly last week. West Coast prices of just over US$1,000 per forty-foot equivalent units (FEU) are the lowest rates recorded since the Freightos Baltic Index was launched in 2016. These prices are 21% lower than in 2019. Rates to the East Coast are 14% lower than 2019 levels.

Asia-Northern Europe rates fell 6% to $1,335/FEU, just 4% higher than in 2019, though reports that some ships are sailing at capacity may indicate that carriers are close to aligning supply with demand levels, which could stabilize rates, Levine said.

Transatlantic prices of $3,893/FEU this week are more than double 2019 levels, though rates fell 7% last week and are 21% lower than a month ago, according to Freightos.

Freightos Air Index data show ex-Asia air cargo rates to Europe and the US are more than 20% lower than a month ago as weak demand persists. Prices to the US of $3.28/kg are more than 70% lower than a year ago, and, at $3.53/kg, rates to Europe are 46% lower than this time last year.