Long-term ocean freight rates collapse by almost 30% in a month as new US contracts reflect market reality - Xeneta

The decline is especially noteworthy as it marks the first time long-term rates have recorded a year-on-year decrease since late 2020

Xeneta reports that the ocean freight industry saw a slump in global long-term rates of unprecedented proportions in May, as the contracted cost of shipping containers dived by 27.5%. The development, detailed by Xeneta’s Shipping Index (XSI®), marks the ninth consecutive month of rates drops, and is the largest ever monthly fall recorded on the XSI®.

A new reality

“If industry observers were left wondering just how bad it could get for carriers after the 10% fall in long-term rates seen in April, here’s the answer,” comments Patrik Berglund, CEO of Oslo-based Xeneta. “This is the largest drop we’ve ever experienced on the XSI®, which charts real-time global rates developments, and it paints a bleak picture of the state of the industry.”

He continues: “Monthly declines have become the ‘new normal’ at present, but this is a collapse. The reasons behind that are manifold, but the main driver is the fact that May marks the point when existing 12-month contracts in the US come to a conclusion and new agreements come into force. These reflect the reality of today’s subdued markets, so are priced much, much lower than their predecessors. The impact of that on the wider industry is here for all to see.”

End of an era

The decline is especially noteworthy as it marks the first time long-term rates have recorded a year-on-year decrease since late 2020. Carriers, Berglund notes, enjoyed a well-documented boost in revenues throughout the pandemic – thanks to disrupted supply chains, high demand, congestion and a lack of equipment – but that era, he says, is “well and truly over.”

“The global XSI® is now down 42% year-on-year,” Berglund reveals, “and with continued macroeconomic uncertainty, evaporating trade volumes, and a wider sense of geopolitical flux, short-term industry omens do not suggest a move ‘back into the black’ at any time soon. This is very worrying for carriers, who are working overtime to manage capacity - adjusting vessel speeds, restructuring services and blanking sailings - and all to no avail. Those that have the greatest exposure to long-term contracts will be feeling increasing financial pain.”

American nightmare

Looking at a regional perspective, long-term developments in the US grab the XSI® limelight. The US import sub-index collapsed 40.6% month-on-month, and has now lost 54.6% of its value since peaking in October last year.

In dollar-terms, this equates to the average contracted price of shipping containers between the Far East and the US West Coast falling by USD 6 140 per FEU year-on-year (a 76% drop on this leading global route). Total import volumes reveal the parlous state of affairs, with volumes into the US down by 21.1% in Q1, while those originating from the Far East are down 25.9%. Conversely, the US export sub-index recorded limited growth (the only XSI® figure to do so), with a 5.1% month-on-month climb.

The only way is down

Perhaps unsurprisingly, the scale of the decline in the US import sub-index was matched only by that in Far East exports, with this sub-index falling 38.6% in May. This index has now lost more than half its value in 2023 alone and is 58.5% down year-on-year. In terms of volume, containerized exports out of the Far East fell by 10.5% in Q1 and are now only 3.3% up against Q1 2019 figures. The XSI for Far East imports fared better, relatively speaking, with a fall of 6.9%, leaving the index down by 28.6% year-on-year.

Contacted agreements for Europe failed to escape a “bloody month” for the industry, with both sub-indexes shedding value. The import benchmark moved down 11.1% from April (32.6% since the start of the year), while its export counterpart fell by 15.9% (matching the decline from the previous month).

The plot thickens

“With demand for containerized exports out of the Far East falling, and a lack of hunger for imports into the US, we have something of a ‘retreat’ in the two forces that traditionally drive global trade growth,” Berglund notes. “There’s very little the carriers can do to protect their precious long-term rates in this kind of climate, especially when we consider that the vessels ordered during the pandemic ‘boom’ are now starting to swell overall industry capacity.

“This is a headline grabbing monthly drop in contracted rates,” he concludes, “but it’s not the end of the story. More developments await on the horizon in what will be a very challenging year for the carrier community. Watch this space.”

Xeneta is the leading ocean and air freight rate benchmarking and market analytics platform transforming the shipping and logistics industry. Xeneta’s powerful reporting and analytics platform provides liner-shipping stakeholders the data they need to understand current and historical market behavior – reporting live on market average and low/high movements for both short and long-term contracts. Xeneta’s data is comprised of over 350 million contracted container and air freight rates and covers over 160,000 global ocean trade routes and over 40,000 airport-airport connections. Xeneta is a privately held company with headquarters in Oslo, Norway and regional offices in New York and Hamburg.