Transpacific spot rates falling despite demand setting new records
The Transpacific trade in 2024 is a case in point on why you need a range of data and analysis to fully understand freight rate volatility and future market movements, says Xeneta in an analysis.
It elaborates:
More specifically, how can Xeneta data explain why spot rates are falling at a time when demand is setting new records? And what does this mean for the coming months in the run up to tender season?
Container imports into the US West Coast in August were the second highest on record and beaten only by May 2021 during the peak of Covid-19.
Volumes fell 3.4% in September from August as the market moved past its import peak, but it was still an all-time high for the month of September and the sixth highest of any month on record.
Despite this strong demand for containerised imports into the US West Coast, data in the Xeneta platform shows the spot market on the Transpacific trade has been in decline.
Average spot rates have fallen from USD 8,023 per FEU in early July to USD 5,401 per FEU in late October.
Capacity is key
The answer to the seeming contradiction of record-breaking volumes and declining spot rates is found in the capacity being offered by carriers on the Transpacific trade.
Data in the Xeneta platform shows carriers responded to the strong demand in Q3 by deploying 19% more capacity compared to Q2 2024 and 17% compared to Q3 2023 (source: Sea-Intelligence).
But have they overshot? The spot market would suggest so with average freight rates falling 10.4% in September and a further 6.4% in October.
Looking ahead to November and there appears to be little change in the capacity offered to shippers and freight forwarders on this trade, even when allowing for some announced blank sailings.
Unless carriers act more decisively to match offered container shipping capacity to demand through more blank sailings or outright cancelling of peak season services, then short term market rates are likely to erode at an even faster pace than seen in October.
Narrowing long-short term market spread
Another issue that requires a deeper dive into the Xeneta data is the narrowing of the spread between the long and short term contract markets on the Transpacific trade.
The spread currently sits around USD 1,000 per FEU, which is a significant decrease from USD 5,500 per FEU in early July when many shippers experienced cargo being rolled.
It would seem logical that the narrowing spread is the result of the declining spot market. While that is the case, it is important to note it is also due to an increasing long term market.
Average long term rates on this trade have doubled since the halfway point of 2024 to stand at around USD 4,000 per FEU.
This narrowing spread has implications for many US importers bracing themselves for tendering season in Q1 2025. While the overall downward direction of the markets seems clear, there is still plenty of water to pass under the bridge before tender season begins for the majority of US importers. Xeneta expects continued market volatility in the next three months on the Transpacific, as well as trades into the US East Coast and US Gulf Coast.
Global and regional context is required
The spot market decline on the Transpacific must also be put into the context of the world’s other major trades. For example, while the Transpacific spot market has decreased 10.4% and 6.4% in September and October respectively, shippers are still paying around USD 2,100 per FEU (+66%) more than they were back in April.
When looking at fronthaul trades from the Far East to Europe, however, spot rates have now almost fallen back to the April level, once again demonstrating how no two trades are alike in ocean container shipping.
Uncertainty is understandable, but data can help you make the best decisions
There is plenty to consider for US importers in the coming months – not least the upcoming US election and potential for new tariffs on China imports. There is also the looming threat of further strike action at ports on the US East Coast and Gulf Coast in January, which can also have repercussions on the western seaboard.
Considering your ocean freight shipping options is top of mind during times like this – when to sign the next long-term contract, which carrier to award it to given the alliance reshuffle in 2025, and how your strategy could be impacted by disruptions such as strikes, wars and tariffs.
Should you focus on all corridors at once or concentrate on those which are used to ship the most essential supplies?
Could an index-linked contract be the best option to provide a level of control during times of volatility so you can channel energy into working with your service provider on operational delivery? More and more shippers are coming round to this way of thinking.
There are no easy answers to these questions and it will depend very much on individual circumstances and supply chain needs, but don’t just cross your fingers and hope for the best.
One can use Xeneta data to understand the relationship between long and short term market movement and offered capacity on trades at a regional and port level, while also benchmarking carrier rates and service reliability.
Perhaps the questions have never been tougher, but you have never had so much data to help you reach the right answer.
Source: Exim News Service: Copenhagen, Oct. 28