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FBX Index June 2023: Stabilisation with a key risk factor

From the perspective of spot freight rates, the market developments in the key trades from Asia to both Europe and North America were what could be expected purely from seasonal factors during the month of May. On the main Atlantic trade from North Europe to the US East Coast, however, spot rates continued to drop sharply. This is not a reflection of the market as such, but a reflection of the normalisation process still ongoing in this specific trade. Whereas, in reality, the other major east-west trades normalised towards the end of 2022, the Atlantic trade was delayed in terms of such a process. This also means that despite the sharp drops in May, the rate level itself is highly elevated compared to pre-pandemic levels and should be expected to continue to fall in the coming months.

Looking at some of the fundamental supply/demand drivers, “normalisation” is also the key interpretation which is supported by the data.

The global demand data for March 2023 published by Container Trade Statistics still showed an element of decline. Global demand measured in TEU*Miles declined -2.7% year-on-year. However, this was after a period of six consecutive months with volume declines in the range of -10% to -12%. March therefore was a sharp improvement. Looking further into the demand data, most major trade lanes showed positive growth in March, with the Asia to North America being the major exception. This Pacific trade did not improve but instead had the seventh consecutive month with year-on-year demand decline in excess of -20%. The underlying driver here is the key risk factor going forward and we will revert to these elements later in this article.

In terms of capacity, the operational bottlenecks which removed large amounts of capacity in 2021-2022 have now clearly normalised. The latest April data from Sea-Intelligence shows global reliability at 64.2%. Even though this is not a good performance it is also not very much out of the ordinary. In 2018, 6 of the 12 months showed performance in the range of 65%-69%. Similarly, the average delay seen in the delayed vessels globally was 4.3 days in the latest measurement. This matches the performance seen in March 2019 and is even slightly better than seen in March 2018.

Using the delays to calculate the amount of capacity which is removed due to delays shows that in April 3.9% of global capacity was absorbed. Whilst still on the higher end of the pre-pandemic normality, such a performance is not unheard of as a similar amount of capacity absorption was also seen in March 2018.

This means that the injection of capacity into the markets going forward will come from the delivery, and phase-in, of new tonnage solely and not from the ripple-effects of the pandemic bottlenecks.

The first initiative has already been demonstrated by the 2M carriers Maersk and MSC. They announced an additional nine vessels into their Asia-Europe network. However, the vessels were needed because they add a full week to the round-trip sailing time on their services. This means that they will inject approximately 200,000 TEU of vessel capacity into the trade, but the weekly carrying capacity – which determines the market strength – will remain unchanged. Not only does this help absorb the overcapacity and reduce the overall operating costs, but it also improves the carriers’ ability to abide by the new emissions rules emanating from the IMO 2023 regulations as well as pre-emptively mitigate the impact of the EU carbon taxation coming in 2024.

Some companies in the US have indeed been reducing their inventories but others appear to struggle. Added to this is the fact that the US consumer behaviour is slowing, trending to a switch to favour services rather than goods. As the pandemic impacted the market in 2020, US consumers made a drastic shift in their weighting between spending on goods and services. This shift appears to begin to slowly normalise which could put a longer term negative pressure on spending on goods.
Source: Vespucci Maritime, Baltic Exchange

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