According to Xeneta’s latest report, the global long-term ocean freight rates have fallen by 24% after breaking their peak in August 2022, gradually slipping for 7 months consecutively. The month of March recorded the decline to be 0.5%. Xeneta forecasts a ‘rough waters’ for carriers when new contract negotiations for the US gather pace in April and May.
The 0.5% dip in March is the smallest in the year till date, considering that the February and January (month-on-month) data shows a reduction of 1% and 13.3%, respectively. Xeneta’s Shipping Index (XSI®) draws on crowd-sourced rates data from leading global shippers. Nonetheless, it shouldn’t be seen as a hint to improving market outlook, said Xeneta CEO, Patrik Berglund.
“The principal reason for the relatively small decline is a lack of new contracts entering validity, rather than any strengthening of fundamentals. The major tendering season in Europe has passed, whereas it’s looming large on the horizon for the US market. The prospects of carriers being able to maintain their current long-term rates here look slim, to say the least.”Patrik Berglund
As compared to April-May 2022, the supply chain disruptions along with a strong demand, together shot the freight rates higher up by 65% in the US. However, during 2023, the geopolitical conditions, market uncertainty and weak demand will have carriers 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, we expect, drag the XSI® down more sharply in the months to come,” said Berglund
In Europe, the European import sub-index showed a ‘substantial’ 6% fall (although this is still 18% up year-on-year), while the import benchmark actually climbed, but only by 0.8%. This remains 62% up against March 2022 and is almost a staggering three times higher than March 2020, before the global pandemic took hold.
In the Far East the export sub-index registered its eighth consecutive decline, sinking by 1.6% to leave rates 11% up year-on-year. The import benchmark mirrored its export counterpart, declining by 1.5% (up 7% against March last year). The XSI® US export benchmark maintained its level from February with no change. However, it is the only sub-index in the report that remains at a record high level, after recording a significant 16.5% increase last month.
“The market is riven by unpredictability, so we need to continue looking to data to map developments,” Berglund says.
He continues: “Although the falls in rates will generate the headlines, we have to bear in mind that the carriers continue to make good money on containers tied to long-term contracts. In fact, the global XSI® remains a healthy 30.5% up year-on-year.
“However, looking at the hard negotiations that lie ahead, it’s very, very difficult to see how carriers can maintain that elevated level. Unless something drastic happens, I think the long-term contracts in the second half of the year will look very different to those that were valid at the start of 2023.”