Predicting the movement of ocean container shipping rates calls for a data-driven approach: Report
Predicting how and why ocean container shipping rates rise or fall is not an easy task and means shippers struggle to forecast freight spend with any degree of accuracy or confidence, especially in light of the volatility in 2024.
There is no crystal ball, but by combining Xeneta data and market intelligence you can gain valuable insights.
The trade from China to Mexico is a good example of the importance of taking a data-driven approach, it explained.
Record-breaking demand and the impact on rates
The China to Mexico trade has seen record-breaking demand, with growth up 18.9% in the first nine months of 2024 compared to the same period in 2023. This volume growth reached an all-time high in June when 135,724 TEU was shipped from China to Mexico (source: CTS).
It is not surprising that such massive growth in demand impacted freight rates. On 1 July, just as demand reached its peak, average spot rates from China to Mexico West Coast hit USD 7,770 per FEU. This was a year-on-year increase of almost 200%.
Spot rates have now softened, down 51% from the July peak and 18% since the start of November.
The signs of a softening spot market were there for those who looked at demand data after volumes shipped from China to Mexico in September dropped below 2023 levels for the first time in 2024.
Immaturity brings volatility
If there is continued slowing in volume growth into 2025 and carriers do not manage capacity accordingly then it should put further downward pressure on spot rates, but it is important to view the data in the context of each individual trade lane in order forecast and manage freight spend effectively.
For example, China to Mexico West Coast is an immature trade lane, certainly in comparison to the Transpacific trade into the US West Coast.
While volume growth into Mexico has been extraordinary in 2021, 2023 and 2024, in terms of actual numbers of boxes, it pales in comparison to the world’s other major fronthaul trades. This means freight rates are particularly susceptible to volatility and we can see this in the Xeneta data.
During 2024, average spot rates have (to a greater or lesser degree) peaked six times on the trade from China to Mexico West Coast. In comparison, the trade from China to the US West Coast has peaked just three times. To emphasise the volatility
further, average spot rates into the Mexico West Coast increased 28% on 1 September before falling back 34% just one month later on 1 October.
Volumes on this trade show it is an increasingly attractive option for shippers, but this volatility means it comes with the risk of unpredictable freight spend.
Tender benchmarking
Xeneta customers are using data to strengthen their hand at the negotiating table and the China to Mexico West Coast trade is a prime example. The spread between long-term and short-term rates stood at USD 5,831 per FEU on 30 June.
The spread has now fallen to just USD 728 per FEU, mainly due to the short-term rates falling but increases in long-term rates have also played their part. Using Xeneta data and intelligence to understand how the long and short term markets are likely to develop is mission-critical if shippers want to maintain control over freight spend and supply chain resilience in the year ahead.
This data-driven approach must also extend to benchmarking rates, transit times and reliability across carriers, all of which can be done in the Xeneta platform.
Geopolitical impact
Trade between China and Mexico has been in the spotlight during 2024 due to suspicions it is being used as a backdoor into the US to avoid import tariffs. If this is true, then the arrival of Donald Trump for a second term in the White House could have significant implications given his stance on increasing tariffs on imports from both China and Mexico.
We should also consider whether port and inland infrastructure is able to cope with further massive growth of imports into Mexico. Certainly, if carriers deploy bigger and bigger ships on this trade to meet increasing demand, it will raise questions over potential for port congestion and delays. This is before importers consider the onwards journey of the containerised cargo on rail or truck. All of this trade infrastructure must scale to avoid bottlenecks at any point.
The current direction for spot rates on this trade is downward, but for those shippers moving boxes from China to Mexico West Coast, you must expect further volatility in 2025. Even if spot rates continue to soften in the coming months, this is an immature trade so there will be many more bumps in the road, said the analysis.
Source: Exim News Service: Oslo, Nov. 25