Container lines offer better contract deals as spot rates slideContainer lines offer better contract deals as spot rates slide

In its Q3 Ocean Shipping Market report, Xeneta noted record spreads between spot and long-term rates on many trades, giving the example of a $2,900 per feu spread between the markets on the Asia-US West Coast trade.

Xeneta’s XSI index hit a record high in August, suggesting falling spot rates are yet to be reflected in contract rate data, leaving container lines in a position to cash in on contracts fixed in recent months.

“However, as volumes fall, carriers are increasingly cutting rates for new contracts and offering better deals to existing customers who haven’t got all their volumes locked in,” said Xeneta.

The structural outlook for the container market was bleak in the report, with spot rates falling to levels last seen in the early stages of the pandemic. For the Asia-US West Coast, rates fell faster than they rose in the wake of the pandemic.

“It took 146 days to get from $5,000 per feu to $9,000, whereas on the way down, it took 119 days for the $5,000 per feu mark to be breached,” said Xeneta.

Behind the drop in demand is a difficult economic situation for consumers in the West. Inflationary pressure has led to increased spending on fuel and food, lowering demand for imported manufactured goods.

“The huge growth in demand for the latter is what drove the US containerized imports to new highs, and as the sales growth in sales is now only just keeping pace with inflation, flattening of the US containerized, imports can be expected,” said Xeneta.

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The company expects inflation to continue to supress demand as consumer confidence drops in an uncertain economic situation.

A global drop in container volumes of 1.4% in the year so far hides an even larger problem for the container sector. Intra-Asian trades have seen a 2.9% growth in volume this year, while Asian exports are down around 1.4%. The relatively short distances of the intra-Asian trades means that overall teu-miles on a global basis have fallen further than the 1.4% shown in overall volumes.

“The rest of the year seems unlikely to reverse this pattern of falling volumes, especially when considering the high demand at the end of 2021. In 2023, demand growth is not expected to be high enough to counter the effects of high fleet growth, leaving freight rates to continue to slide,” said Xeneta.

On the supply side of the equation, the containership orderbook does not offer much hope of a reprieve. Flushed with cash, container lines flocked to yards to place orders for new vessels from the end of 2020 through summer 2021, and the tight market and high freight rates led to higher asset prices and therefore lower demolition in the fleet.

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“Yet another month has ticked by with no container ship being sent for demolition. The last container ship that was demolished was a 30-year-old 310 teu ship back in December 2021,” said Xeneta.

As the market eases, so have charter rates for containership tonnage.

“The falling need for new tonnage as global congestion eases and volumes fall is also reflected in falling charter rates, which took their largest week-on-week hit in the week ending 16 September… On 30 September, the 6 to 12-month charter rate for a 6,800 teu ship was $62,000 per day, almost $80,000 a day lower than it had been a month earlier, but still almost $40,000 per day higher than in September 2020,” said Xeneta.