Container Shipping Rates Are Diving Deeper Into Impending Trouble

Container shipping lines face bleak prospects as peak season loses steam and spot rates dive into loss territory. Alphaliner cites insufficient demand and overcapacity as key factors behind this decline.

Linerlytica adds that the container market sentiment is worsening, with little hope for a rate rebound in October despite efforts to reduce capacity through canceled sailings. Zim, in particular, faces heightened risk with 70% spot exposure in the trans-Pacific, higher than the usual 50%.

Sinking Rates

The Freightos Baltic Daily Index (FBX) spot assessment for the Asia-North America West Coast lane has fallen 16% over the past month, to $1,712 per forty-foot equivalent unit as of Thursday. The FBX Asia-North America East Coast assessment is down 13% over the past month, to $2,662 per FEU.

• “For North Europe, we have not seen the spot rate this low since early 2018, when the level was lower for a brief two weeks,” Lars Jensen, CEO of Vespucci Maritime, said in an online post on Thursday. “To see a more sustained period of spot rates this low or lower, we have to go back to the depths of the price war in late 2015 and early 2016.”
• The Drewry World Container Index (WCI) shows that European trades are faring even worse than the U.S. trades. WCI spot indexes hit a recent peak on Aug. 17.
• Since then, the WCI assessment for Shanghai to Rotterdam, Netherlands, has plunged 34%. Spot prices from Shanghai to Genoa, Italy, have dropped 27%.
• The WCI’s Shanghai-Los Angeles assessments have declined 11% since Aug. 17, to $2,104 per FEU for the week ending Thursday. The WCI Shanghai-New York index dropped 18% over the same period, to $2,900 per FEU.

Fall Back And Fallout

Ocean carriers briefly enjoyed higher spot rates surpassing annual contract rates in July and August, signifying a potential return to profitability.

However, Xeneta data reveals a significant decline in the spot rate premium over the past month in the Asia-East Coast trade. On August 15, short-term rates were $580 per FEU higher than long-term rates, but this advantage has since dwindled to just $77 per FEU as of Thursday.

Fallout for Kim

Zim ceased the last of its services to the U.S. West Coast in the first quarter and has deployed its newbuildings on the East Coast route. The Asia-East Coast market is Zim’s most important global trade by far, accounting for 34% of total volume in Q2 2023.

 Zim has an unusually high 70% of its trans-Pacific business on spot this year because it could not find enough customers to meet the minimum price threshold it had set for annual contracts.

At the time of its latest quarterly call, on Aug. 16, spot rates exceeded contract rates, so Zim was temporarily benefiting from its decision on the spot-contract mix.

“We remain extremely cautious. How long the recent improvement in the trans-Pacific trade lane will stick is unknown. Whether it’s going to go beyond October or not is unknown,” he said on the call.

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Source: Freight Waves

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