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When not all freight rates have “normalised”

The transpacific and Asia-Europe spot markets in container shipping have returned to December 2019, pre-pandemic levels, but other segments and contract markets have not.

Transpac spot rates have declined by 80 to 84% in the year to the end of May 2023, as everybody knows. This was a correction from the recent super-inflationary trends seen during the Covid period – not a real rate collapse. The factors behind the recent crazy rates – shortages of capacity, strong demand and port congestion, have all gone – so the rates reverted to previous levels.

To put the 80% year-on-year reduction in perspective, our weekly Drewry World Container Index also provides a comparison between:

In fact, when compared with December 2019, the latest transpacific spot rates are broadly the same! You could say that spot rates on this route have fully normalised. We know that some transpacific spot rates are lower than these, but Drewry is working here using average ALL-IN RATES (including origin THC and destination THC and fuel surcharges)

Beware that the comparison does not take into account the inflation which many economies have experienced between 2019 and now – if you take into account inflation, then spot rates are actually lower than in 2019.

The data here comes from the Drewry Container Freight Rate Insight. Drewry has just introduced a new, faster container freight portal, which brings together the well-known Drewry Container Freight Rate Insight solution (covering spot rates) and our Drewry Benchmarking Club (covering contract rates, spot rates, and ocean procurement best practices).

The transatlantic route, however, is different. It does not follow the spot rate trends of the transpacific and Asia-Europe routes.

On this route, which has different dynamics and vessel sizes from the larger East-West routes connecting Asia, spot rates have not normalised. They are still 62% higher than in pre-pandemic and remain elevated. Yes, they have dropped by 47% in the year to May 2023, but Drewry forecasts that transatlantic westbound rates have further to fall.

So, if you ship mainly using the spot market, you should consider these findings that transpacific spot rates have now “fully normalised”, the transatlantic rates have only partly normalised.

The situation is different again on the Asia-Europe and the South America routes.

The data on contract rates here comes from the Drewry Benchmarking Club, a global community of 100+ multinational retailers and manufacturers.

Based on the Drewry East-West Contract Rate Index, a weighted average of contract rates on 6 major east-west trades which has tracked contract rates since 2016, average valid contract rates in May 2023 were 50% lower than in May 2022. But, and this is an important message, contract rates paid today by shippers are still about 80% higher than in December 2019.

In other words, contract rates have not normalised overall on the East-West routes. The normalisation of East-West contract rates is lagging that of East-West spot rates.

In the Drewry Benchmarking Club, shippers have access to forecasts of spot rates and contract rates for the remainder of the current year and for next year. Drewry expects contract rates to decline again in 2024. No stability of rates there, in our view.
Source: Drewry

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