As the global economy reels from the ongoing impact of coronavirus, hard work and strategic thinking from the carrier community appears to have mitigated immediate damage to long-term contracted ocean freight rates according to Xeneta, the market intelligence organisation.
Despite the spectacular drop in economic activity, unprecedented rises in unemployment, and the apparent certainty of global depression, the latest XSI® Public Indices report from Xeneta shows that rates actually climbed during April. The rise, although small at 0.7%, reverses the decline seen in March, reinstating a trend of gradual monthly increases that began in October 2019.
“As we all know, the world economy is in turmoil and, in this segment, supply clearly outstrips demand,” commented Xeneta CEO, Patrik Berglund. “However, carriers have been working hard to make adjustments to protect rates, aggressively withdrawing capacity from the market and adopting more ‘creative’ strategies. For example, on the Far East-Europe trade we are now seeing some owners sending ships round the Cape of Good Hope rather than utilising the Suez Canal. This obviously takes longer, temporarily removing capacity, while also saving on Suez transit rates. As such, contracted rates are generally holding strong, with spot rates, despite a bleak outlook, also proving resilient for the time being. How long that lasts is, of course, another issue.”
The horizon, Berglund states, is crammed with uncertainty. As oil prices collapse to historic lows, he notes that carriers will likely come under increasing pressure to drop or amend the bunker surcharges introduced to cover fuel costs in line with IMO 2020. Furthermore, the introduction of new, record-breaking tonnage to the market - such as the just unveiled 23,964 TEU HMM Algeciras (the first of 12 huge new boxships to be delivered to HMM over the coming months) - will only add to the glut of supply.
“Carriers are, and will be, subject to huge pressure in the immediate future,” said Patrik. “A disciplined approach will help safeguard rates, but, given the economic dire straits, will individual carriers hold ranks or be forced to reduce rates in a bid to secure business and claim market share? There are no certainties at present, making it increasingly important for all parties in contract negotiations to stay up to date with the latest market intelligence, ensuring they achieve optimal value for their businesses.”
Photo: Patrik Berglund