The buoyancy in freight and time charter rates ebbed in recent weeks. A major softening is not on the cards, though, most experts agree.[ds_preview] By Michael Hollmann
The mad pace of rate escalation in container shipping has lost steam – both in the spot freight market in liner shipping and in the charter market. Even so, port congestion and the existing cargo backlog may prevent any significant downward correction over the coming months.
Route indices for freight rates are now moving sideways or slightly lower when it comes to spot bookings ex Far East. Levels for transatlantic shipments, however, appear to be firming still and so do contract freight rates which under normal conditions cover the largest chunk of business for liner operators. These trends became evident in opposing index movements recently, with the spot-oriented SCFI and Freightos Baltic indices showing some erosion while the more contract- or monthly tariff-related China Containerized Freight Index (CCFI) and Xeneta indices kept pushing up. German software provider Setlog, which tracks inbound freight bookings of more than 100 consumer goods importers in Europe, confirmed that freight rates have levelled off with some import containers ex Far East even moving at rates around 1,500 $/FEU lower than before. »Exceptions such as 20,000 $/FEU into Europe as witnessed during summer cannot be seen right now«, it noted.
Counting the »congestion« impact
On the transpacific eastbound route, spot rates were seen drifting lower at the beginning of October, with average rates quoted on the Freightos platform slipping from over 20,000 to around 16,000 $/FEU and then recovering to 17,400 $/FEU. Space and equipment shortages were seen easing to the extent that lead times from booking to loading dropped from several weeks to just one week in some cases, market sources reported. Still, these changes are not material and the majority of players in the ocean freight industry don’t expect a major correction in the coming months.
First of all, a flattening or softening in liner shipping rates is a normal, seasonal occurrence for this time as peak trade volumes for Xmas in Europe and North America begin to ebb. All of the cargo is usually booked or loaded by Golden Week in China. This year, however, there is still a lot of pent-up demand for goods as inventories remain low after prolonged capacity constraints in shipping.
The view aired by many analysts and economists including Germany’s renowed IfW Kiel is that cargo volumes are still outpacing vessel supply during October, in other words: lack of capacity keeps hampering trade. Latest cargo data (up until August) points to continued, solid growth in global container loadings at around +3 % year-on-year (adjusted for fluctuation during the pandemic). This may slow down a little as consumer spending diversifies from goods to services again, although the IMF forecast for world trade growth is still strong at +6.7 % for 2022.
Meanwhile it has become clear that the real swing factor for supply/demand going forward is port congestion. As critical nodes of world trade, container ports across the world got clogged up with cargo that cannot be transferred inland fast enough due to productivity issues along the logistics chain. Danish research firm Sea-Intelligence estimates that world fleet productivity may have been compromised by as much as –12.5 % due to congestion in recent weeks. Maritime Strategies International (MSI) puts the volume of tonnage caught up in congestion beyond what would be normal for this time of the year at over 1 mill. TEU (up around 20 % from September) driven by lengthening vessel queues in ports across North America, China and Southeast Asia. Even on the assumption of a 5 % m-o-m reduction in congestion from now, the situation would not return to normal until the H2/2022.
Panamax: 46,000 $/day for 4 years
In the charter market, the upward momentum seems to have stalled as well – again a fairly common feature for any fourth quarter. However, despite the occasional reported fixture slightly below last done, hire rates are in general stable at multiples of those one year ago. Recent highlights included the fixtures of baby panamax vessels at $ 40,000 per day for 5 years (»Merkur Archipelago« to Maersk) and 46,000 $/day basis 4 years (»Merkur Horizon« to Maersk). In the post-panamax segment, a 6,900 TEU unit (»Cape Chronos«) managed to fill the time gap until hand-over to a new owner with a round voyage time charter at $ 155,000 with CMA CGM in the Far East.
Fixing levels for 3,000–3,500 TEU tonnage pushed up higher as illustrated by the 45,000 $/day achieved by the 3,091 TEU »Daphne« for 36 months with Ocean Network Express in the Far East.
Activity for 2,500–2,800 TEU ships was a bit more muted during and after Golden Week, with 36 month periods rated at mid $ 30,000’s to $ 40,000 depending on type. However, by the time HANSA went to press, brokers reported more fresh enquiry cropping up.