FBX Index March: Looking forward

As we entered February, the trends carried over from 2021. Congestion in global supply chains created as a result of the pandemic are slowly easing but remaining supportive of the freight markets with a very minor pull back Asia-Europe and Mediterranean container trades. Transpacific, coming off later in 2021, has since been pushing upward. FBX01 China/East Asia to North America West Coast saw a 6.16% increase from the end of February to the beginning of March. In the near-term the stark political and economic landscape, as a result of the Russian invasion of Ukraine, has shifted sentiment to bullish across the board. The basic fundamental has been a shift in oil prices, with Brent Crude spot nearing $140 on 8 March 2022 – resulting in a sharp rise in Bunker Adjustment Factors implemented by Ocean Liners and included in the FBX. However, the picture is a bit more complicated than simply oil prices. Sanctions on Russian companies threaten to suck out much of the demand from the region that would have otherwise been transhipped from Northern European ports, with major ocean liners moving to ban Russian cargoes midweek last week.

Taking the transpacific on its own, bullishness for 2022 and 2023 is not a new thing caused by Ukraine – or indeed any other specific event. The FBX01 Cal23 contract had slowly seen an increase since the start of the year, climbing up 11.7% since the start of the year. And, whilst spot prices have been slowly ticking up, the landscape for congestion in the US West Coast ports has changed very little. This big risk factor for ocean liners moving through 2022 will be the shift away from spending on goods as inflation shifts more towards the cost of raw materials and energies, rather than the underlying freight price. This comes alongside action by the US Department of Justice to investigate and take action on Ocean Liner alliances for potentially unfair pricing practices. There is very little bearish sentiment in the near-term. However, inside of the remit of futures trading, longer-dated contracts into Cal23 and Cal24 have progressively gained more interest, as the market looks to quantify the impact of new capacity and decarbonisation on the major transpacific routes.

On Asia-Europe, routing and capacity could be starkly affected by recent events – the direction of markets remains two-directional. The bull case for the trade rides on high fuel costs, the collapse of airfreight capacity (due to sanctions on Russian airlines) and potential disruption on Asia-Europe rail freight. This forces more cargo onto ocean freight into an already tight market, triggering the potential for rate increases. Crude prices on their own threaten to increase BAF by anywhere from $50-$150 per FEU. The more bearish view considers demand destruction as Russian cargo demands collapse (or at least can’t be serviced via Europe or the Mediterranean). This is alongside potential caution by consumers who stand to pay a lot more on energy bills rather than the big engines of retail that helped surge freight rates late in 2020, early 2021. Relative uncertainty has been reflected in the movement of futures prices. Using Cal23 as an example, since the start of the year the longer-dated contract had reached a peak of $8,350 in February, before pulling back to $7,900 on 24 February 2022, and then pushing back up again to $8,000 on 08 March 2022. With this, oil may have more room to move up, as The US and UK ban Russian oil imports. This will be balanced against the developing demand picture that we will see later this week and into March.
Source: Baltic Exchange