Xeneta: Long-term ocean freight rates plunge by more than 60% in year of decline, but changing fortunes appear imminent

Long-term ocean freight rates slid once again in August, marking the 12th consecutive month of declines for beleaguered carriers. According to the latest real-time data from the Xeneta Shipping Index (XSI®), contracted rates fell 7.8% in August, meaning prices have now dropped 62.7% since this time last year. The world’s busiest routes – exports from the Far East – have endured the most dramatic declines, with Xeneta’s regional sub-index showing a 75% year-on-year fall in the value of valid contracts.

On the spot

“It’s a torrid time for carriers in the contract market,” comments Peter Sand, Chief Analyst at Oslo-based Xeneta, “with continuing weak demand exacerbated by burgeoning overcapacity as more and more new ships come online. This is driving down the industry’s prized long-term rates, with falls across the board when we assess region by region. The boom period of just one year ago must now seem like a very distant memory.

“However,” continues Sand, “the industry needs to bear in mind developments in the spot market. Here carriers have managed to lift the rates on the major trades in the past couple of months. As we know, the long-term market follows spot market movements, albeit with a slight lag. Therefore, regardless of the big plunge here – which shippers should benefit from – the falling rates may not last. So, I don’t think shippers should be complacent; we could be approaching a market shift.”

Down time

If this is the case, it will be a welcome development for carriers. Sand points to month after month of falling rates since this time last year, with the smallest decline being 0.1% in December 2022, while May 2023 saw a collapse of 27.5%.

“And, once again,” he notes, “the data reveals that every major XSI® sub-index lost value in August.”

In Europe, the import sub-index fell 3.4% for the month and is now down 60.1% year-on-year. Exports fared slightly better, with a dip of 2.8% from July (down 52.4% since August 2022), despite a significant drop of 13.6% in contracted prices on the export trade from North Europe to China, which has now collapsed 85.4% year-on-year.

The US Import XSI® recorded this month’s largest fall, sinking by 14.9% to leave it 65.2% down year-on-year. The biggest monthly rates drops were seen out of China, Japan, Taiwan, and Korea – to both US West and East coasts – with price falls ranging from 19.3% to 62.3%. The XSI® for US exports was this month’s most resilient figure, losing just 0.8% of its value.

Xeneta’s data continues to paint a bleak picture for Far East contracted export rates, with the sub-index registering a 14.2% monthly decline for August. The region’s import XSI® fared better, with a decline of 2%, now down 51.1% year-on-year.

Long-term perspectives

“It’s tough out there,” Sand says, “but carriers will take heart from the fact that spot rates have now moved up above contracted rates on the world’s leading trade corridors. As a result, we may finally see some upward pressure on long-term rates.

“Shippers who have been playing the spot market to save money will now be looking at shifting volumes to contracted agreements, which may offer better value. This could elevate prices. So, have we now reached the point where long-term rates have bottomed out? If so, it’s a good time for shippers to negotiate new contracts and lock in favorable rates.”

He concludes: “It’s too early to say if there’s a definite market ‘switch’, but I certainly wouldn’t bet on another run of consecutive monthly XSI® falls on the scale we’ve just experienced. I’d advise all stakeholders to keep watching the data for the next market moves.”
Source: Xeneta