FBX Index December: Looking forward

It is quite an exciting time from the standpoint of container futures, with the market slide that started at the end of February 2022 now sitting at levels that are recognizable to 2019 and drawing in a dramatic increase in buy-side interest. Futures market levels directly align with buyer demands for 2023 and 2024 – creating a perfect opportunity for consumers to lock in hedges on futures.

In terms of futures market development, liquidity and viability – the secret sauce lies in genuine volatility and price security, rather than relying on the panic in the market earlier in 2022 and at the end of 2021 that resulted in the signing of multi-year flat price contracts. These fixed price contracts are either now being renegotiated for 2023 or often swapped for index-linked contracts, maintaining the volume security ocean liners need to keep their businesses for the next three years without the requirement for consumers to take a very long-term view on the absolute price and demand in the container market.

All fronthaul routes have reflected this market slide on FBX CME Container Futures. On the transpacific into the US West Coast, FBX01 China/East Asia to North America West Coast Cal23 has collapsed 69.87% since 1st August – extending a drop from 2022 prices, with the Dec 2022 future down -37.71% on the same timeframe. This puts FBX01 China/East Asia to North America West Coast prices for 2023 annual contracts close around the $1,900/FEU mark – a stark contrast from physical market offers earlier this year at $5,000 to $11,000/FEU for three years. The West Coast has been a victim of a drop in demand, spurred on by fears of labour disputes shifting volume into the US East Coast. Notably, the number of vessels waiting at The Port of Long Beach dropped to 0 earlier in November – with US East Coast ports remaining slightly congested. FBX03 China/East Asia to North America East Coast saw Cal23 values held up until fairly recently, collapsing down 51.30% to $4,100 – Cal23 value is a stone’s throw away from levels not seen since 2019 – a valuable opportunity for those buying container freight and looking to hedge.

Asia-Europe has also started to fall rapidly – growing inflation in European countries and subsequent demand destruction has resulted in a similar drop in rates more in line with FBX03 rates into the US East Coast. FBX11 China/East Asia to North Europe Cal23 values dropped 55.02%, with Cal23 trading last week at $3,500/FEU. While index values continue to correlate with spot market developments, many larger consumers and freight forwarders are raking in substantial discounts on spot rates, sometimes, 50% to 60% discounted from index prices. This has put the cal23 value at a level where if you achieved these discounts as a consumer, you could be hedging 2023 today at the approximate equivalent of $1,400/FEU. To put it in relative terms, this is $32.44 less than FBX11’s 2019 average of $1,432.44. New buying interest is unsurprising at these levels, even with a backdrop of slack demand making projections for 2023 extremely difficult.
Source: FIS