FBX Index August: Looking forward

Through to the end of July, we saw an abrupt resumption of volatility in container freight spot markets as we move into the third quarter of 2022, a seasonal demand peak largely expected to support spot prices in the short term. This is in stark contrast to the norm of container freight, which usually sees rates increase between 10-20% in reaction to a demand rush as a result of inventory restocking, primarily in North America and northern Europe.

Instead of a peak, we have seen erosion of spot prices on almost all CME listed routes. FBX01 China/East Asia to US West Coast saw a 59.66% drop in spot levels from 3 May to 29 July 2022. Along the same period, FBX03 China/East Asia to US East Coast dropped 48.21%, holding on to marginal value and coming off a bit later than the West Coast route. This appears to have been driven by a shift away from congested West Coast ports, bolstering rates into the East Coast. This has also led to a delayed impact on spot rates on the East Coast versus the West Coast. Support on FBX03 drew in trading on the Aug22 at $10,000, however using Q4 as a benchmark, FBX03 Q4(22) has dropped along the same period, losing some 36.69% on value since the beginning of May. FBX01 Q4(22) has also seen the same erosion of value, down 45.6%.

On the Asia-Europe routes, the pace of change has been far less severe. Along the same period (3 May – 29 July) FBX11 China/East Asia to North Europe has dropped only -8.74% on spot. FBX13 China/East Asia to the Mediterranean was down just -5.40%.

However the notion that prices were baked in based on bearish sentiment was smashed on 1 August, with the FBX13 index price coming off -$1,319 in one day. Conversely, FBX11 rebounded +$874. Through May and June, FBX13 Cal23 value actually increased +1.15%. Priced in largely by sellers, both FBX11 and FBX13 have maintained sharp backwardation in the forward curve – consistently offering value for businesses on the buying side looking to hedge container capacity, particularly in the long term for 2023 and 2024.

This value comes alongside very stark triggers for volatility. The cost of fuel, albeit high, has started to slip on the back of more OPEC+ production. Alongside this, LNG has been boosted by the persistent economic impact of the war in Ukraine. In addition, as of the end of July, tensions between China and the US have ramped up substantially over Taiwan. Any actions over Taiwan threaten stability along the core export routes from China to the US and Europe, with a large amount of capacity linked to Taiwan-based ocean liners and owners.
Source: Baltic Exchange