Container Shipping Turning Point? Long-Term Rates Start to Slide

Long-term contract rates in container shipping fell for just second time this year in September in what is now the latest sign that the sector’s pandemic-driven boom cycle has run its course, according to ocean freight benchmarking company Xeneta.

While spot rates have fallen steadily for several months now, contracted rates have been slower to catch up. But the latest data from the Xeneta’s Shipping Index (XSI®) reveals long-term contracted rates fell by 1.1% in September, marking the first drop since January and only the third decline in the past 21 months.

“It had to happen sooner or later,” says Xeneta CEO Patrik Berglund. “We’ve seen a steady, and at times spectacular, uptick of long-term contracted rates since the early days of the pandemic. This has fueled record-breaking carrier profits, much to the dismay of a financially-stressed shipper community. But, over the past couple of months, clear signs of a market shift have emerged.”

Spot rates have fallen across the board this year and in some cases, like on the key Shanghai – Los Angeles trade, are down more than 70% from their September 2021 peaks as U.S. import demand softens and congestion eases somewhat.

“The divide between the long- and short-term market is now wider than ever before on many trades, despite record numbers of blank sailings in what would normally be considered a peak season,” says Berglund.

“In short, this means the ‘shoe is finally on the other foot’ when it comes to upcoming contract negotiations for Q4 and beyond. The shippers are in the ascendancy while carriers will now be competing to lock-in volumes in the face of lower global demand. Therefore, we expect this month’s relatively marginal decline to pick up pace as the year draws to a close.”

But with shippers finally holding the cards again, industry consultant Drewry is advising them not to “seek revenge” for pandemic headaches considering how consolidated the container shipping market has become. Xeneta echoes that advice.

“So much of the focus has been on profits and performance,” Berglund adds. “But it might be helpful to move to an atmosphere of establishing trust and building solid relationships between stakeholders. That attitude would certainly help around the negotiating table.”

Also, keep in mind that Xeneta Shipping Index benchmark is still 112% higher than it was in September 2021 and carriers’ have certainly proven themselves savvy at upholding profits even as demand weakens.

“There is a very long way for rates to fall before we start talking about any major corrections in line with pre-pandemic levels,” Berglund stresses. “Of course, it could be a case of ‘the bigger they are the harder they fall’, but the carriers have proven very adept at managing the supply-demand balance in recent times, so nothing’s certain here. We certainly expect rates to soften in the near-future… but by how much?”

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