Ocean container shipping market seems reaching peak: Analysis
The spiralling ocean container shipping market of recent months appears to be reaching a peak – but how is it is possible to tell and where does it go from here?
The latest Xeneta data shows average spot rates from the Far East to US East Coast stood at USD 10,078 per FEU on July 17, 2024. Into the US West Coast, average spot rates stood at USD 7,917 per FEU.
This leaves average spot rates on these major fronthaul trades up more than 140% since the end of April when the latest market spike began.
There has also been a spike on fronthaul trades from the Far East into North Europe and Mediterranean, where average spot rates have increased by 163% and 95% respectively since April 30 to stand at USD 8,499 per FEU and USD 8,127 per FEU.
Given the magnitude of these increases, if the market is reaching a peak, how do we know?
A flat market mid-high
The Xeneta market ‘mid-high’ identifies the spot rates being paid by shippers in the 75th percentile of the market.
Looking at the Far East to US East Coast trade, while the average spot rate ticked up slightly in mid-July, the market mid-high has remained flat.
This is a crucial aspect of a market nearing its peak because it indicates a growing number of shippers and freight forwarders no longer feel they need to pay higher and higher spot rates to ensure their containers are transported.
The impact of a cooling upper end of the market can be seen in a slowing down in average spot rate growth. Using the Far East to US East Coast trade as an example, while average spot rates increased by a further 2.8% on July 15, this was much less than the 23% rise on July 1.
GRIs failing to stick
The Xeneta platform uses more than 450 million crowdsourced data points to provide a clear view of the overall market – this includes the rates offered by individual carriers and freight forwarders.
Data reveals some carriers attempted to push for higher spot rates in the mid-July general rate increases (GRI) while others offered lower rates for the first time in months.
This is important because it means shippers can play carriers off against each other to secure a better spot rate.
Evidence of this behaviour can be seen in the Xeneta platform. Early data received prior to July 15 suggested average spot rates would increase on the Far East to US West Coast trade by 2% as carriers looked to push through GRIs.
However, new data received from shippers fresh from negotiations shows average spot rates did not increase – in fact they have fallen by USD 50 per FEU since July 14.
This is perhaps a small, yet significant, crack in the dam in that it demonstrates carriers have failed to make the mid-month GRIs stick and shippers are regaining some negotiating power.
It is also an example of how quickly market sentiment can change if shippers begin to feel more confident about available capacity.
Where does the market go from here?
It is important to understand that different trades follow different timelines. For example, spot rate growth has slowed on the Far East to North Europe trade in mid-July but there has still been a slight uptick in the mid-high market.
Conversely, the trade from Shanghai to Manzanillo on the Mexico West Coast has already started to soften, with average spot rates falling by 10% since reaching a peak on July 1. This is possibly due to more capacity being available on this trade as carriers announce numerous new services in response to record-breaking demand growth.
Will spot rates fall?
It should be remembered that the fundamental cause of the market spikes in 2024 is the conflict in the Red Sea, with the majority of container ships continuing to sail around the Cape of Good Hope. Unless there is a large-scale return of container ships to the Suez Canal – which seems unlikely at present - the situation cannot be fully resolved.
However, recent history shows it is possible for spot rates to soften on the major fronthauls out of the Far East while Red Sea diversions are still in place.
Trades from the Far East to US West and East Coasts reached a Red Sea crisis peak on February 1 before declining by 32% and 33% respectively by April 30 (the start of the current spike).
The major fronthaul trades into Europe reached a Red Sea crisis peak a little earlier in mid-January, before declining by 33% into North Europe and 32% into the Mediterranean by the end of April.
Shippers will be hoping it is a case of history repeating, but there are other storm clouds on the horizon, as per the analysis.
(To be continued)
Source: Exim News Service: Oslo, July 24