FBX Index April: Looking forward

Looking forward, the disruption to global supply chains shows no near-term signs of improving anytime soon. Continuing covid disruption in Asia, with Chinese authorities still pursuing a ‘zero-tolerance’ policy, will continue to impact ports and factory production unless there is a radical change in approach to infections. The conflict in Eastern Europe looks set to continue, as no negotiated peace settlement or even a cease-fire looks likely at present, particularly with recent news of atrocities committed by Russian forces on the ground, occupying international political arenas. At present if anything looks likely it could be further sanctions on the Russian economy and individuals in response. The knock-on effects of these two factors (covid and conflict) look set to continue to impact shipping with congestion in ports and supply chains on both sides of the Atlantic as well as elsewhere, particularly Asia.

March saw the FBX Index fall approximately 4%, (from 9838 at the end of February to 9443 on 31 March), this weakness in near-term pricing reflected in forward pricing, with Cal 22 prices pulling back, but longer-term pricing on Cal 23 and Cal 24 supported. The market is now adjusting to the new normal, with the Russian economy sanctioned, commodity supplies restricted, and prices having risen in key areas such as hydrocarbons, ores, agricultural products and fertilisers – and most importantly for container freight – higher bunkering costs. Russian ports and routes are also closed or undesirable. With that in mind, pricing should hopefully begin to tabilize even if it does not show signs of returning to pre-pandemic rates anytime soon.

On FBX01 China/East Asia to North America West Coast forward rates had peaked mid-month on longer-dated contracts (FBX01 Cal23 hit a top at $9,500 and then pulled back $200 at the end of the month). Meanwhile, short-date contracts saw far more activity. And, whilst spot prices have gradually pushed down, curve prices have progressively flattened out in line with spot price progression. FBX01 May 22 started March at $9,550 and ending up at $10,600. As we’ve begun to fully set up trading counterparties onto the CME, offers have developed inside of 2022 getting a bit of a wide initial spread to start off with. However, finally hedgers have the opportunity to lock in prices in the very volatile short-term market.

The growing capacity of the global box ship fleet, with newbuilds coming into service and older shipping being held to work-on, rather than scrapped, plus the small number of conversions from other ship types to container carrier, will undoubtedly help meet global demand. However, given the widespread congestion in the system, the disruption to shoreside services in Asia and the threat of further labour strikes and the shortage of HGV truck drivers in the US and Europe, the impact on rates looks set to continue.
Source: The Baltic Exchange