Xeneta: Spot Container Shipping Market in Dire Straits
Spot rates from the Far East to the US West Coast have fallen to their lowest level since 2020, averaging less than USD 3 500 per FEU and close to a third of what they were at the start of the year.
The market low on this trade is down to less than USD 1 900 per FEU. The drop in spot rates on the transpacific has happened much faster than the increase. It took 146 days to get from USD 5 000 per happened much faster than the increase. It took 146 days to get from USD 5 000 per FEU to USD 9 000, whereas on the way down, it took 119 days for the USD 5 000 per FEU mark to be breached.
Long-term rates have been more resilient, with the spread between short and long term rates reaching new highs on many trades. For example, shippers on the long term market are paying USD 2 900 per FEU more than prevailing spot market rates between the Far East and the US West Coast.
As the global XSI® suggests, reaching another record high in August, the average rate for all valid long-term contracts has yet to decline, allowing carriers more exposed to the long-term market to benefit while global shippers pay up. However, as volumes fall, carriers are increasingly cutting rates for new contracts and offering better deals to existing customers who haven’t got all their
volumes locked in.
So far this year, global container volumes are down by 1.4%, but with different trajectories across regions.
The world’s largest trade: intra-Asia has seen 2.9% growth in the first seven months of the year, while exports out of the region are down by 1.4%. The growth on this major intra-Asian trade with shorter distances means that the global fall of 1.4% in volumes when combined with the distances sailed, which is also important for container shipping, has fallen by even more than the nominal drop in container volumes would suggest.
On the main trades, the biggest fall in volume has been from the Far East to the US West Coast, a trade which has seen a fall of 700 000 TEU in the first seven months US West Coast, a trade which has seen a fall of 700 000 TEU in the first seven months of the year.
Total volumes from the Far East to North America have seen a much smaller 0.1% fall as increased exports to the US East Coast have almost entirely made up for the drop to the West Coast. The rest of the year seems unlikely to reverse this pattern of falling volumes, especially when considering the high demand at the end of 2021. In 2023, demand growth is not expected to be high enough to counter the effects of high fleet growth, leaving freight rates to continue to slide. The container shipping fleet is set for strong growth over the next couple of years, as ships ordered when the market initially started rising get delivered.
Orders for new ships by carriers and tonnage providers picked up during Q4 2020 and stayed high till the summer of 2021. New orders for containerships reached their highest monthly level in March 2021 when orders for 1.1m TEU of new container shipping capacity were placed. Yet another month has ticked by with no container ship being sent for demolition. The last container ship that was demolished was a 30-year-old 310 TEU ship back in December 2021. The non-existent demolition activity and the slow ordering of new ships before Q4 2020 suggest the average age of all ships in the container fleet is ticking upwards, reaching its highest point this decade at just under 14 years of age. Carriers are taking different approaches to their fleets. MSC has ordered many new ships, bought many second-hand ships and chartered plenty of tonnage ages. According to Alphaliner, MSC’s order book stands at 1.53m TEU, including ships which, once delivered, will be chartered in on long-term time-charters. This will be added to their current active-owned fleet of 1.9m TEU and 2.5m TEU currently chartered in.
In contrast, Maersk’s (MSC alliance partner) order book stands at just 0.3m TEU (including ships they will charter in the long term) with just 27 ships on order. Maersk also owns a much larger share of the tonnage it operates than its alliance partner. Of their current operating the tonnage it operates than its alliance partner. Of their current operating capacity, Maersk owns 59% of its tonnage, compared to MSC’s 43%. The falling need for new tonnage as global congestion eases and volumes fall is also reflected in falling charter rates, which took their largest week-on-week hit in the week ending 16 September.
Rates declined for contracts between 6 to 12 months as well as for contracts for several years.
On 30 September, the 6 to 12-month charter rate for a 6 800 TEU ship was USD 62 000 per day, almost USD 80 000 a day lower than it had been a month earlier, but still almost USD 40 000 per day higher than in September 2020.
The volume of retail sales in the EU fell in July as inflation affected consumers’ shopping carts, even though the value of the goods still posted impressive 9.4% growth. US consumers are also being hit hard by inflation, and while retail sales volume has continued to post marginal growth here, the types of good driving growth have changed.
Consumers have focused their spending on food and gas and away from typically imported goods.
The huge growth in demand for the latter is what drove the US containerized imports to new highs, and as the sales growth in sales is now only just keeping pace with inflation, flattening of the US containerized, sales is now only just keeping pace with inflation, flattening of the US containerized, imports can be expected. On the manufacturing side, China continues to struggle with its zero-COVID policy and saw its slowest quarterly GDP growth in Q2 since the height of the pandemic. The Chinese economy grew by 0.4% in Q2, down from 4.8% in Q1. Looking ahead, inflation will continue to tame demand in major consuming nations, with uncertainty high and confidence low.