Despite Easing Spot Container Freight Rates, Serious Bottlenecks Remain

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A recent Sea Trade Maritime News states that container freight contracts agreed at high levels despite spot rate easing.

Jeremy Nixon, CEO of Ocean Network Express (ONE)

Speaking about the market Jeremy Nixon, CEO of Ocean Network Express (ONE), told an online briefing: “So I think overall we remain positive but of course, we will inevitably expect during certain cycles and past cycles, some headwinds that at the moment, you could argue that with energy costs and inflation, concerns and interest rate concerns and possibly some slight switching back to a more balanced service – consumer economy in terms of purchasing, we may see some slowdown in the 2022 in terms overall demand for container services.”

However, he also noted that container ports remained heavily congested and even there was a slowdown in demand it would take time for that to work through the system.

Much like its peers in container shipping ONE has experienced a huge turnaround in profitability going from $586m loss in the FY2018 ended 31 March 2018, its first year of operation to an estimated profitability of $15.4bn for FY2021 ended.

For the period Jan – Dec 2021 ONE reported an EBIT of $13.9bn on revenues of $26.4bn giving it an EBIT margin of 53%, which it said compared to an average margin of 40% for eight peer companies that published their results.

Dip in spot market

While there has been some dip in the spot market for container rates in the first part of this year ONE has seen customers contracting long term rates at close to, or even higher than the current spot market, in negotiations that took place at the end of the year, are concluding for Japan, and finalise in April/May for the transpacific.

“Those contracts have shown significant increases in the freight rates, to the extent that customers are locking in one year or even longer close to the spot market, or even higher than the current spot market witnessed to 2021. So that is a positive sign,” Nixon said.

He said that for ONE as whole around of its freight was in the form of long-term contracts.

Looking at spot rates he said the drop off since Chinese New Year was not as sharp as is traditionally seen in this period. “Since February, we’ve seen a slight drop off, but I would say that the level of drop off in relative terms compared with the last five years for the post Chinese New Year actually showing it’s a positive development in the drop is not so significant as we’ve seen in the previous years.”

Combined with Covid lockdowns

Combined with Covid lockdowns in areas such as Shenzhen and the Ukraine – Russia conflict impacting around 2.5% of Asia – Europe volumes, Nixon said a large drop off in spot rates would have been expected, but they had not seen this happen.

Nixon also flagged the potential impact of US West Coast ports labour negotiations where the current contract is due to expire in June this year.

He noted feedback from the industry was these negotiations might not be easily resolved. “So, we may see some slowdown in productivity or delays associated with the negotiations during June, July and August.”

ONE expects some normalisation of the market in the second half of 2022, but this could be impacted by the US west coast labour negotiations and Covid concerns in China. “We just have to say we take you on a case-by-case, month-by-month basis. But we remain still reasonably positive about the outlook for 2022,” Nixon said.

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Source: Sea Trade Maritime

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