- Contract rates for container shipping to Mexico surged by 35% in July to over $2,550 per feu, reflecting market uncertainties and efforts to hedge against increased tariffs.
- The SCFI has dropped for the fourth consecutive week due to fears of a US recession. However, the Mexican market has become a strategic hedge against this volatility.
- Despite the uncertainty, global contract rates are rising, particularly for Asian exports. Spot rates have peaked, influencing long-term contract rates. European head haul rates remain firm as carriers adjust capacity.
Box volumes into Mexico have surged by approximately 30% over the past year amid growing uncertainty in the US market. This increase comes as shippers and forwarders navigate various challenges, including the volatile Middle East conflict and a shifting political landscape in the US. The immediate economic outlook in the US remains uncertain, impacting shipping strategies, reports Seatrade Maritime.
Risk management strategy
According to Linerlytica, the Shanghai Containerized Freight Index (SCFI) has declined for the fourth consecutive week, reflecting concerns about a potential US recession. However, the SCFI does not account for Mexican volumes, where contract rates saw a significant increase starting July 1. Mexican spot rates have decreased, contrasting with the higher contract rates.
Peter Sand, chief analyst at Xeneta, explains that Mexico is being used as a risk management strategy by shippers and forwarders. The substantial increase in contract rates in July suggests that shippers are securing 10-25% of their volumes to Mexico to mitigate risks associated with potential tariff hikes.
In mid-2023, contract rates from Asia to Mexico were around $2,630 per feu. By the end of 2023, these rates had fallen more than 20% to slightly over $2,000 per feu. After remaining steady in Q1 2024, rates declined by 5% to $1,893 per feu in April. The rates surged again by $700 in July, reaching over $2,550 per feu before decreasing by $150 in August.
Xeneta’s XSI index, which tracks long-term rates, shows a narrowing gap between spot and contract prices on major export routes from Asia to the US and Europe. Although global contract rates are rising, the increase is relatively small compared to spot rates. The XSI sub-index for Asian exports has risen by 12.6% to 178.8, indicating a shift in market sentiment.
Emily Stausbøll, senior shipping analyst at Xeneta, notes that inflated spot rates are driving up contract rates. However, if spot rates continue to fall, the upward pressure on long-term rates may diminish.
European head haul rates have remained stable as carriers adjust capacity, partly due to vessel diversions from the Suez Canal to the African Cape. This adjustment has absorbed much of the expected over-capacity for the year.
Shippers are adopting various strategies in response to the uncertain market. Some are locked into long-term contracts at favorable rates, while others are on shorter contracts with periodic rate adjustments. Some shippers have agreed to Red Sea surcharges with provisions for modification based on the evolving situation in the Middle East.
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Source: Seatrade Maritime
