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FBX Index May: Looking forward

The Asia outbound market had seen a decline throughout April, largely driven by the shutdown of several sections of China following COVID outbreaks and strict anti-COVID measures. Anecdotally at least, output has dropped between 40-80% with China manufacturing output dropping to its lowest level in two years (official PMI). Whilst this decline has been fairly progressive on the Asia-Europe and Asia-Mediterrenean routes, movements on the Asia-US West Coast and East Coast indexes have been characteristically violent. FBX01 China/East Asia to North America West Coast dropped $376/FEU from 1 to 28 April and then sharply dropped $1,547/FEU in one day from 28-29 April.

On the Asia-US routes, rates on the front of the curve have maintained the movement on spot. However, firm offering midway through April lifted values up and flattened the forward curve – market value for Q4(22) increasing from $10,250/FEU on 1 April to $12,000 on 28 April. This is more on the back of new market entrants filling out the sell side of the Container Freight Futures market, rather than an indication of strengthening of the near-term market. Longer-dated contracts have also remained quite supportive, with the Cal23 value rising from $9,300/FEU to $10,750/FEU on the same timeframe. This provides a good opportunity for sellers to lock in longer-dated rates at attractive levels whilst indicating a basis for bid-side hedgers to protect themselves against any impending demand bullwhip once the Chinese economy reopens.

As we mentioned, Asia to Europe has seen a progressive decline in line with the steady erosion of spot prices. The FBX11 China/East Asia to North Europe May 22 contract decreased from $11,400/FEU to $10,850/FEU following on from declines which started in late January after reaching a top of $15,050/FEU. Much like Asia to US, the curve has steadily flattened, with longer-dated markets remaining quite stable in the face of a potential surge in demand following the reopening of China. The FBX11 China/East Asia to North Europe Cal23 contract has only shed $50 on value throughout April, sitting out at $8,050 and providing value for buyers looking to protect against rising prices in the mid-term. On top of any potential spike in demand out from Asia in the coming months or years, we see several volatility triggers primarily driven by newbuilds hitting the water from the second half of 2023. Also a new baseline for commodity prices (primarily energy) following the return of demand and the Russian invasion of Ukraine, which provide a relative bull case for index rates. On top of this, the market will have to pay up for entrance into the EU ETS (a decision which may well be delayed) – a market that has seen sharp rises over the past two years.
Source: The Baltic Exchange

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