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End of an era says Xeneta as container contract rates dive 27.5%

Photo: Marcus Hand Containership at sunset in Singapore
As contract rate negotiations conclude on the transpacific between US shippers and container lines Xeneta index recorded its largest ever fall in May.

Xeneta’s Shipping Index (XSI) has been falling for the past nine months as shippers renegotiated lower contract rates on the back of sharply falling spot rates. However, the 27.5% drop for May marks a collapse.

“If industry observers were left wondering just how bad it could get for carriers after the 10% fall in long-term rates seen in April, here’s the answer,” commented Patrik Berglund, CEO of Xeneta. 

“Monthly declines have become the ‘new normal’ at present, but this is a collapse. The reasons behind that are manifold, but the main driver is the fact that May marks the point when existing 12-month contracts in the US come to a conclusion and new agreements come into force. These reflect the reality of today’s subdued markets, so are priced much, much lower than their predecessors. The impact of that on the wider industry is here for all to see.”

Looking specifically at the US import trade, the sub-index for this trade fell 40.6% in May month-on-month and has now lost 54.6% of its value since peaking in October last year.

Putting this into dollar terms Xeneta said this equated to the average contracted rate for containers moving from Asia to the US West Coast falling by $6,140 per feu year-on-year, a 76% drop for this mainline trade.

Overall, the XSI is down 42% year-on-year and the sharp falls in rates are not just limited to the transpacific trade. On the trade into Europe from Asia the import benchmark moved down 11.1% from April, and has fallen 32.6% since the start of the year.

In an environment of contracting volumes and geopolitical and economic uncertainty Xeneta does not expect an improvement any time soon.

This is very worrying for carriers, who are working overtime to manage capacity - adjusting vessel speeds, restructuring services and blanking sailings - and all to no avail. Those that have the greatest exposure to long-term contracts will be feeling increasing financial pain,” Bergland said.