Container Rates Stall as Capacity Glut Offsets Hormuz Shock

By Gavin van Marle (The Loadstar) – Container spot freight rates on the main east-west trades largely flatlined this week as excess capacity and uneven demand failed to further spur recent pricing increases by carriers.

This week’s World Container Index (WCI) from Drewry showed spot rates on the transpacific and Asia-Europe trades appeared to have largely stabilised after recovering from the shock of conflict in the Middle East.

The WCI’s Shanghai-Rotterdam leg stayed unchanged compared to the week before at $2,543 per 40ft, while rates on the Shanghai-Genoa leg gained 2% week-on-week to end at $3,529 per 40ft, indicating that new carrier FAK levels introduced on Wednesday (1 April) have yet to take effect – CMA CGM implemented a new FAK rate of $3,500 per 40ft on Asia-North Europe shipments, which is still around $1,000 per box from current market levels.

The problem, according to analysts at Linerlytica, is that carriers on the Asia-Europe trade appear to prioritising volumes over pricing.

“Asia-Europe rates continue to fluctuate with carriers announcing rate increases only to undercut them when utilisation levels fail to provide support,” it wrote this week.

“Maersk continues to persistently undercut the market with their spot rate discounts after edging rates upwards with the same pattern set to be repeated again in April,” it added.

And Drewry noted that just four blank sailings have been announced for next week, so unless there is a sudden upsurge in demand over the Easter holiday, that trend is likely to persist.

It was a similar situation on the transpacific trade, where the WCI’s Shanghai-Los Angeles route fell 1% to $2,663 per 40ft, while the Shanghai-New York leg gained 1% week-on-week to $3,434 per 40ft.

However, Xeneta’s short-term spot rate data shows shippers and forwarders have had to contend with a circa 30% increase in spot rates from the end of February to beginning of April.

“Five weeks into the Strait of Hormuz closure and spot rates on every major East-West trade lane have risen sharply, showing this is a conflict with global repercussions for ocean supply chains,” Xeneta chief analyst Peter Sand said.

“From Far East to North Europe and Mediterranean – trades with direct exposure to the Middle East disruption – spot rates are up 31% and 30% since the end of February.

“No shipper is insulated from financial or operational risk. Far East to US West Coast – a trade which transits the Pacific thousands of miles from the epicentre of conflict – has seen spot rates climb 29% since the end of February,” he added.

Xeneta’s short-term market average rate on Far East-US west coast as per yesterday stood at $2,430 per 40ft and to the east coast at $3,382 per 40ft.

But that climb appeared to have ended, at least for this week – US west coast freight forwarder Freight Right said that bargain hunting shippers could “still find rates as low as $1,650 China to US West Coast and $2,450 China to US East Coast”, and said that low US demand, expected to be accentuated by rising petrol prices, had seen carriers adopt an “ultra-short-term approach” to pricing.

“After attempting to jack up prices in late March, carriers saw volume vanish, forcing them to pivot and lower rates slightly to attract any available cargo.

“By only committing to seven-day rate windows, carriers are protecting themselves against sudden spikes in fuel or further drops in demand,” it said.

However, carrier fuel costs remain the elephant in the room, and the next couple of weeks will see various emergency fuel surcharges come into effect, and as the conflict continues these will inevitably increase, although Mr Sand said carriers still had other tools to mitigate escalating costs – although few are attractive to shippers.

“Bunker fuel at Singapore — the world’s leading bunkering hub — remains available, with prices roughly double pre-crisis levels, but trending slowly downward after an initial spike of around 200%,” he said.

“Rotterdam prices continue rising, and ship-to-ship fuel transfers in the Far East are adding cost and complexity.

“With no visible end to the crisis, however, carriers are almost certainly drawing up another set of contingency plans.

“The coming weeks will show whether slow steaming and alternative routing can hold the line, or whether blank sailings become the next lever carriers reach for,” he added.

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