Insight & Analysis

Press release: Upturn in the ocean freight shipping market proves to be a false dawn

Published: Nov 2023

31st October 2023 – Any hopes of a revival in long-term ocean freight shipping rates were short-lived after the latest data from Oslo’s Xeneta indicated the market is once again in decline.

Press release news paper

In September, the Xeneta Shipping Index (XSI®), which tracks real-time rates developments on a month-to-month basis, revealed global long-term contracted rates had increased for the first time in 12 months.

This raised the question of whether it was a sign of a resurging market or merely a temporary halt in its decline.

It now appears September was indeed a false dawn after data released by Xeneta this week showed October reverted to a now familiar downward trend with the Global XSI® dropping by 2.6% to 165.3 points.

Emily Stausbøll, Xeneta Market Analyst, said: “Carriers have had some success in capacity management, limiting the impact of the 3.3% decrease in global shipping volumes year to date. However, this hasn’t been enough to support sustained rate increases on a global basis.

“The answer to the contrasting fortunes on the XSI® in September and October could be found in the Far East, where we saw some unusual, and seemingly one-off, behaviors. For example, Korea to Australia and New Zealand grew 2% in September yet dropped 31.1% in October.

“Therefore, it isn’t necessarily surprising that September’s XSI® global rate increase proved to be a false dawn for carriers.”

“Knowledge is power when entering negotiations, so shippers should be armed with the latest data and intelligence in the Xeneta platform to understand the long-term XSI® trajectory.”

Calm before the storm

Freight shipping companies have already endured 62.2% being wiped off market prices in the past 12 months and, far from the tides turning in their favor, the situation may get worse before it gets better.

Stausbøll said: “Significant changes in Global XSI® will come in the New Year following the tender season when many shippers will be signing new contracts at lower rates than the ones they are replacing.

“For example, last year the index fell by 0.6% in October, while in January it fell by 14.7%. This was then followed by an even bigger drop in May when it fell by 27.5%, driven by the large number of new contracts with shippers in the US.

“I expect the storm to arrive in January with an even more severe decline on the XSI® than 2023. The picture is unlikely to be quite as dire for carriers by May, but 2024 still looks set to be a stormy time for them on the XSI®.”

Dire situation sees carriers subsidising ocean freight rates

European Imports was the only XSI® sub-index to grow in October, up by 3.0% to 187.5 points. However, when we turn our attention to European exports the story is very different, falling by 11% in October to 164.3 points.

Stausbøll said: “To provide an example of the dire situation carriers find themselves, the average of all valid long-term rates between North Europe and China is USD 95 per FEU, excluding terminal handling charges.

“With rates at such a low level, it becomes clear that carriers are transporting goods across the world at below cost and are effectively subsidising shippers on this back haul trade.”

Far East market could get even more painful

The index for exports out of the Far East fell by 6.9% in October to 152.8 points. This is a 75.1% drop from a year ago, and the lowest this index has been since January 2021.

The index for imports into the Far East fell to 108.8 points in October, 6.2% lower than September and the lowest any index on the XSI® has been since October 2021.

Stausbøll said: “The drop in Far East exports is particularly painful for carriers because of the impact it has on their earnings given the scale and importance of this trade on a global level. It will get even more painful when the storm of new rates hits the XSI® in January.”

US imports could be high risk trade in 2024

US imports fell 3.4% to 186.8 points on the XSI® in October – but without successful capacity management by carriers the situation could have been much worse.

With volumes dropping 15% year to date – more than any other major trade – we would expect the index for US Imports to show the most severe decline. However, this has not been the case, with rates on the XSI® falling broadly in line with other major trades.

Stausbøll said: “Carriers have prioritised removing capacity from this high-priority trade – often sacrificing profitability on other smaller trades.

“Yes, the carriers have limited the damage on this trade, however an XSI® of 186.8 points gives plenty of room for it to fall. And with the storm coming in 2024, could this be a trade that represents one of the most significant risks to carriers?”

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