Long-Term Contracted Rates Climb To Unprecedented Highs As Industry Hits Overdrive
2021 is shaping up to be a golden age for container ship operators, with January’s substantial rise in long-term contracted rates being “blown out the water” by developments in February. According to the latest XSI® Public Indices report from Xeneta, which crowdsources shipping data to deliver unique market intelligence, rates soared by 9.6% month-on-month (following January’s jump of 5.9%).
All key shipping corridors registered steep climbs, driven by continuing surging demand, lack of equipment supply, and spot rates that refuse to budge from their lofty peaks.
Oslo-based Xeneta’s XSI® captures the very latest rates from leading shippers, utilizing over 220 million data points, with more than 160,000 port-to-port pairings. As such it delivers a truly in-depth understanding of global long-term rates movements, which, this year, have been nothing short of dramatic. The index is now at its highest ever level, up 13.9% year-on-year, with a 16% climb over the first two months of 2021.
Shippers praying for a ‘time-out’ in this frenzied arena may have to steel themselves for more of the same, warns Xeneta CEO Patrik Berglund.
“It’s no overstatement to say this really is an extraordinary time for the industry,” he comments. “The demand for available containers is well-reported, as is congestion at ports (particularly in the US) and the disruption caused by coronavirus. This continues to fan the flames of red hot rates, giving the carriers a huge advantage over shippers when it comes to negotiations.”
He explains: “The operators have succeeded in maintaining all-time high spot rates and this gives them ammunition for negotiating favorable long-term contracts. That creates an unpalatable choice for shippers. Namely, run the risk of playing the spot market and hope for lower rates, or lock into contracts and secure your supply chain, but at a high price. And of course, if you’re a smaller shipper there’s a real danger of being sidelined for larger or more profitable customers. It’s a very difficult, fluid situation, where the latest market data is absolutely key to making the best business decisions.”
The strength of the market is demonstrated by the unusual fact that every key trade corridor in February, in terms of both import and export, recorded significant climbs. Some were the highest ever seen on the XSI®.
In Europe, imports rose by 9.6% (following last month’s huge 19.3% gain) with the index now up 21.1% year-on-year. The exports benchmark, meanwhile, saw its largest ever monthly hike of 11.1%, driving a 7.7% increase against February 2020 rates. Far East imports rewrote the record books for the XSI® with a 38.9% jump, the biggest single monthly increase seen on the indices. This leaves the index 25.7% higher year-on-year. The exports figure could not keep pace, but still showed marked growth with a climb of 8.1%, pushing the benchmark up 27.4% against this time last year.
Developments in the US were equally dramatic. Here the imports figure rose by 7.1% (7.9% year-on-year), while exports saw their greatest ever increase in the report, up by a massive 17.6% month-on-month. However, coming on the back of a prolonged period of weak development, this benchmark remains down 2% seen against February 2020.
Berglund says the dynamic nature of the market makes second-guessing future developments problematic, although he does see inevitable “adjustments” ahead in an evolving segment.
“The congestion in the US is a good example,” he notes. “Recent reports suggest that there were 21 vessels anchored at Los Angeles/Long Beach, with an average waiting time of eight days. This comes on the back of National Retail Federation (NRF) intelligence indicating imports into major US gateways reached all-time highs in the second half of 2020. So, there’s an impetus for carriers to look at west coast alternatives, such as Oakland and Seattle, and launch new services for greater efficiency. That could impact upon rates.
“In Europe we’re already seeing developments with a new service launched by China United Lines (CUL) serving the Far East. Interestingly, purchasing network XSTAFF has joined forces with CUL to offer its clients – shippers of a smaller scale – enhanced reliability and cost security. A second route is scheduled to commence operations soon. This model is an intriguing alternative, as is cargo owners looking to manage their own fleets. Could this be a way for shippers to regain control?”
“In the long-term fundamental change is possible,” Berglund concludes, “but for the short-term shippers should be prepared for the probability of further demanding negotiations and continuing high rates. The latest market intelligence will help them understand just how challenging the way ahead promises to be.”
Companies participating in Oslo-based Xeneta’s crowd-sourced ocean and air freight rate benchmarking and market analytics platform include names such as ABB, Electrolux, Continental, Unilever, Lenovo, Nestle, L’Oréal, Thyssenkrupp, Volvo Group and John Deere, amongst others.