Freight rates in liner shipping fall rapidly now, with only the Europe/America route showing higher levels of stability. Forecasts for next year are increasingly sombre. By Michael Hollmann[ds_preview]
As if someone pulled a lever, the decline in container freight rates has gathered significant speed on major routes out of Asia. As this issue of HANSA goes to press, spot rates in the all-important Far East/Northern Europe trade are trending towards just 2,000–2,200 $/FEU, with some bullet rates said to be as low as 1,400–1,500 $/FEU. In other words: the market is back to where it was at the start of 2020 just before the pandemic hit. Depending on the benchmarks or indices you look at, spot rates for imports from Asia were more or less halved within four weeks. Losses week-on-week reached more than 20% in the middle of November.
Less volume, faster handling…
Since the market has been under growing pressure already since August and with confidence dwindling, it is no surprise that monthly and longer-term contract rates are getting dragged into the maelstrom as well. Average short-term rates (up to 31 days) for liftings from the Far East to North Europe dropped by almost 47% m-o-m to just 2,622 $/FEU, according to benchmarking platform Xeneta. Long-term contract rates were still holding to a higher 7,200 $/FEU on average in November, according to German consultant Transporeon. This was down 8% m-o-m and 25% from the peak of Q2. The decline is set to accelerate, though, unless container lines begin to manage capacity more rigorously including lay-ups. »If current trends continue, rates will catch up with the spot market in February or March,« Transporeon warned. Two effects seem to have intensified lately. On the one hand, cargo volumes appear to be shrinking more rapidly due to lower demand from consumers and manufacturer in Europe and also in North America.
September data from Container Trades Statistics (CTS) revealed staggering falls of 20% and 24.5% in container loadings ex Asia to Europe and to North America, respectively. Global liftings across all routes shrank by 8.6%. Market talk and cargo tracking data by some service providers suggest that the downturn in trade continues. US supply chain data firm Fourkites reports that the 28-day average import volume as per early November had decreased by 10% across US East Coast ports and even by 15% across US West Coast ports from the previous month. Purchasing manager indices for November indicate that business activity keeps slowing both in Europe and in North America, with the flash PMI for the Eurozone coming in at 47.8 (slightly higher than in October) and that for the US at 46.3 (lower than October). With a mild recession in prospect, Xeneta predicts a contraction in global container liftings of up to 2.5% next year.
Further compounding the imbalance between fleet capacity and cargo volume is the decrease in port congestion during the last weeks. According to Clarksons, the level of container ship capacity at a port or defined anchorage has reduced from 36% on average during the first half to just 33.3% in the first half of November. As a result, TEU slots come available again more quickly, effective capacity goes up. Transit time data for containers points in the same direction. Freight forwarder Flexport assesses the average duration from cargo-ready date in the Far East to container release at the European discharge port at 83 days as per mid-November, down from a peak of 122 days back in April.
Persistent backlog off Savannah
However, in the southern range of the US East Coast, port congestion has proven more persistent, dissipating more slowly than in the Far East or in North Europe. As per 23 November the backlog of ships outside Savannah was still reported to be 28 vessels, constituting an ongoing bottleneck for services between the US East Coast and North Europe. Combined with more robust export levels from Europe to the US than to Asia, this has served to keep vessel utilisation on transatlantic services elevated. Logistics firms still report westbound sailings from Europe to be booked out a few weeks ahead. Hence, the rate curve in this trade looks like a very soft landing when compared to ex-Asia trades. The average short-term rate for North Europe/US East Coast has dropped by only 5.5% to 7,352 $/FEU since October, according to Xeneta.