Further Disruption Expected In Container Ship Market Despite Best Efforts From Leading Carriers
Long-term contracted ocean freight rates for carriers continued their downward trend through the month of October. The latest freight data from the XSI® Public Indices report from Oslo-based Xeneta shows a continued drop in contracted freight rates as the industry heads into the key seasonal months.
Rates on a number of key routes have continued a steady downward slide since early summer but have yet to fall below the levels seen one year ago, nor at the start of this year.
The company’s XSI (Xeneta Shipping Index) which reports on the long-term contracted market, dropped a further 2.2% during October 2019 to reach 110.74 points, but this level remains 1.5% higher than one year ago (at the end of October 2018), and 2.2% higher than the levels reported at the start of this year.
Xeneta’s unique indices use the very latest crowd-sourced shipping data – covering over 160,000 port-to-port pairings and 110 million data points to offer an accurate picture of the freight markets among ocean carriers.
Next months to be critical
According to chief executive Patrik Berglund the next few months will likely be critical in shaping contract negotiations on key trade lanes, with significant general (FAK) increases planned on the Far East-North Europe trade routes, as well as the transpacific routes for November 1st.
“Spot rates on these routes have continued to trend downwards, so carriers will be looking to set a more positive tone ahead of rate negotiations and the introduction of the new low-sulphur in fuel regulations in 2020 that could see an increase in bunker costs,” he says.
Despite the difficulties facing carriers, Berglund notes that Maersk has still been able to upgrade its full-year earnings (EBITDA) guidance from $5bn to between $5.4bn and 5.8bn. The Danish line attributes the improved prediction to reliability and capacity management, in addition to continued margin improvements. Some of this improvement would have come from a reduction in fuel prices, with IFO (Intermediate fuel oil) having steadily declined since April.
The devil is in the detail
While the overall XSI Index showed a continued decrease the devil is in the detail when looking at more regional export and import data trends over the last year. Berglund notes that the current indices continue to look erratic, but the overall trend of a declining freight rate market will likely continue for a short time still despite carriers’ best efforts.
Economic and geopolitical instability, such as even more delays for the UK leaving Europe (Brexit) and the trade war between US and China reaching now into the end of the year season, will add more necessity for shippers and freight forwarders to keep a sharp eye on rates.
Imports on the European XSI™ remained mostly unchanged month-on-month for October, falling by just 0.1% to 111.42 points. It is worth noting that Xeneta’s European XSI ™ ended the month 3.6% higher than at the end of October 2018, and 1.8% than at the end of 2018.
“Over the month the index has failed to sustain any upward momentum – It has been fluctuating between 106.83 and 112.95 for the last four months,” states Berglund.
“Imports on the European XSI ™ look positive, being 3.8% higher year-on-year, but the more near-time trends are less positive,” says Berglund, noting that month-on-month the October rates fell by only 0.1% to 111.42.
Meanwhile exports on the European XSI ™ fell 2.3% in October to 111.50 points, bringing the index almost in line with European imports. Year-on-year, exports remain up 1.9%, thanks largely to a 1.1% increase reported since the end of 2018.
As Far East-North Europe trade faces continued headwinds, Maersk and MSC have announced they will be extending the suspension of their AE2/Swan service by an additional 2 weeks.
The short-term capacity reduction will be combined with efforts to increase FAK rates to $1,100 per TEU, whilst CMA CGM is similarly looking to raise them to $1,000 per TEU.
“Whether the short-term capacity reduction will be enough to ensure the increase is sustained is questionable, given rates have been falling since the start of 2019 and previous improvements have been short-lived,” says Berglund.
However, with annual contract negotiations on the horizon carriers will try and improve rate conditions, even if only temporarily.
Far East Exports/Imports
Far East imports on the XSI ™ fell to another all-time low having declined by 4.5% month on month during October 2019 to 93.83 points.
“This now makes this benchmark 17.6% lower than the same period of 2018 and down 17.3% since the end of last year,” Berglund points out. “Far East exports declined by 4.0% in October to 117.25, reversing the gains reported over the previous two months. This fall means the index is now 3.0% lower than in October 2018 and down 0.9% since the end of 2018”.
US Imports / Exports
While imports on the US XSI ™ fell slightly in October to 121.78 points the index remains close to an all-time high. The 0.3% month-on-month decline means that the index ended October 20.3% higher year-on-year and 19.9% higher than 10 months ago.
Exports remain virtually unchanged over the month at 94.22 points, which represents a 10.8% increase year-on-year and 7.6% over the course of 2019.
Reflecting on future rate changes on US exports and imports Berglund notes that talks between the US and China have resulted in a tentative “phase one” deal that could mark the beginning of the end for the protracted trade war. Both sides have agreed to further discussions at an upcoming summit of the Asia-Pacific Economic Cooperation Forum.
“While the news will be welcomed, it is by no means a formality and further disruption to the trade is still possible, particularly as the proposed December tariffs on $150 bn of Chinese consumer goods are still scheduled to go ahead,” admits Berglund.