Xeneta container rates alert: further rates decline for carriers as demand and overcapacity concerns compound uncertainty
Long-term contracted ocean freight rates for carriers continued their downward trend through the month of September, albeit falling by just 0.1% globally. Although the decline, disclosed in the latest XSI® Public Indices report from Oslo-based Xeneta, is slight it comes against a backdrop of increasing overcapacity, widespread blanked sailings and on-going concern over US-China relations, adding to industry uncertainty.
According to Xeneta’s unique XSI® indices, which utilizes the very latest crowd-sourced shipping data – covering over 160,000 port-to-port pairings, with over 110 million data points – long-term rates have followed a pattern of decline since Summer 2018 (excluding an unexpected rise in May).
Cause for concern?
Both individual carriers and carrier alliances have been utilizing the full range of tools at their disposal – including the extensive use of blank sailings – to counter this trend, but with limited success.
It’s a situation that, says Xeneta CEO Patrik Berglund, will undoubtedly concern the segment’s shipowners and operators.
“There’s a number of factors creating unease,” Berglund comments. “Some are of the industry’s own making, while others certainly are not. For example we have Evergreen pushing ahead with an order for ten 23,000TEU vessels in a market that is already awash with overcapacity (hence the growing phenomenon of blanked sailings). This is understandable when The Ocean Alliance, of which it is a member, wants to challenge 2M for ULCV strength – and therefore economies of scale – in an ultra competitive market, but it doesn’t help rebalance the supply-demand scales.”
He continues: “Then we have the ongoing saga that is the trade war. The US recently announced a delay in its next wave of tariff increases, but there is zero certainty of what comes next for industry players. For example, will be there be more front-loading of cargo to avoid further tariffs – bolstering demand and rates – or has the necessary stockpiling already transpired? And of course we have the IMO regulated move to more expensive 0.5% low sulfur fuel oil for 2020. This will have obvious bottom line ramifications.
“It is, without doubt, a high pressure situation for carriers at present. But, as we’ve seen in the past in this dynamic sector, things can change very quickly!”
In terms of September’s activity, the XSI® Public Indices develops an industry snapshot showing mixed regional fortunes.
The European import benchmark recovered some of the ground lost last month – when it fell 1.4% – increasing by 0.2%. However, the export index declined by 1.1%. Nevertheless, European exports remain 4.2% up year-on-year and are up 3.5% since the end of 2018.
Imports on the Far East XSI® registered their third consecutive month of declines, falling by 0.8%, but the export index showed signs of improvement, edging up by 0.3%. It has now risen by 5.1% since the end of 2018.
Developments in the US were contrasting, with the import benchmark rising by 0.3% and the export figure falling by the same margin. Both benchmarks are up year-on-year however, with imports up 20.3% and exports rising 3.7% against September 2018.
The need for intelligence
“The figures may seem somewhat erratic, but the established long-term decline is a reality for the increasingly competitive carrier market,” Berglund concludes. “The uncertainty here reflects more widespread economic and geopolitical unpredictability, and that is difficult – if not impossible – to control.
“As such, all players within the shipping value chain must continue to follow the very latest market intelligence to get the best value for their businesses. That is the only way to keep pace with fluctuating rates, the supply-demand dynamic and the almost daily developments impacting upon this complex, demanding and fascinating industry sector.”
Oslo-based Xeneta provides unique insight into ocean freight rates by crowdsourcing the very latest rates from leading global shippers. The companies feeding data into the unique software platform include names such as Electrolux, Continental, Unilever, Lenovo, Nestle, L’Oreal, and Thyssenkrupp, amongst others.