Container Shipping Industry Facing Significant Downturn In Long-Term Freight Rates

Credit: eilis-garvey-unsplash

The container shipping industry experienced a significant downturn in global long-term freight rates during the month of May, as the contracted cost of shipping containers plummeted by a staggering 27.5%, according to Xeneta’s Shipping Index (XSI®). This marks the ninth consecutive month of rate drops and represents the largest monthly fall ever recorded on the platform.

Fall In Freight Rates

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,” said Patrik Berglund, the CEO of Oslo-based Xeneta. “This is the largest drop we’ve ever experienced on the XSI®, which charts real-time global rate developments, and it paints a bleak picture of the state of the industry.” Xeneta believes the collapse of long-term freight rates reflects a new market reality. Berglund emphasized that while monthly declines have become the ‘new normal’ this year, “this is a collapse,” he said.

“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,” Berglund explains. “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.” Taking a regional perspective, the XSI® highlights the significant decline in long-term developments in the US. The US import sub-index witnessed a staggering 40.6% month-on-month collapse, resulting in a 54.6% loss in value since its peak in October of the previous year.

Containerized Exports

The decline in the US import sub-index was only matched by the decline in Far East exports, which fell by 38.6% in May alone. This sub-index has now lost over half its value in 2023 and is down by 58.5% compared to the previous year. In terms of volume, containerized exports from the Far East experienced a 10.5% decline in the first quarter and are now only 3.3% higher compared to the figures from the same period in 2019.

“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.

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Source: Gccaptain


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