Ongoing disruption in ocean freight container shipping has seen spot rates soar during May and June across the world’s major trades – but there are also implications on the long-term market, especially for freight forwarders.
Global Shipping Index
The Global Xeneta Shipping Index (XSI®), which measures all valid long-term contracts in the market, fell by 1.7% in May to stand at 151.6 points. This took place at a time when spot rates have spiraled, surpassing the peaks seen during the Red Sea crisis earlier in 2024 on major trades from the Far East to North Europe and the Mediterranean as well as the US West and East coasts.
While the relatively flat Global XSI® suggests a long-term market that is insulated from the current chaos, that very much depends on your viewpoint.
For example, a long-term rate is rendered largely meaningless if you can’t ship your goods on it, and that is the situation for some shippers and freight forwarders who are being forced onto the spot market – with some paying an additional premium to secure space for their containers on board ships.
During an ocean freight container capacity squeeze, the question is not only ‘What rates can I secure on a long-term contract?’, it is also a case of ‘can I even move my cargo on a long term contract?’.
No business can be completely shielded from the impact of supply chain disruption, but for larger shippers with rates negotiated directly with carriers, the answer to the latter question is more than likely ‘yes’, but for smaller shippers and freight forwarders the situation will be far less certain.
Freight forwarders feel the pinch
In the scenario where goods are still moved on a long term contracts, experiences can still vary significantly, and that is seen in the spread of rates being paid by shippers and freight forwarders.
For example, the XSI® sub-index for Far East Exports posted a slight 0.7% increase in May to reach 161.3 points, suggesting that all valid long-term contracts are immune from the volatility of the short-term market.
Once again, that very much depends on your viewpoint.
When looking at long-term contracts signed within the past three months on the Far East Exports index, freight forwarders have seen an increase in rates compared to January. Meanwhile, shippers have been enjoying lower rates.
Why are freight forwarders paying more?
Before the escalation of conflict in the Red Sea in December last year, carriers would not have expected a scenario in 2024 where a reduction in available ocean freight container shipping capacity required them to prioritize some customers over others (as had previously happened during the height of the Covid-19 pandemic).
Yet, that is the situation the industry has found itself and most carriers have clearly chosen to prioritize relationships with shippers over freight forwarders.
That leaves some freight forwarders fighting to get any kind of long term rate from carriers – and even if they are successful, they will be paying more than shippers. These freight forwarders also face the prospect of being squeezed even further through surcharges and premium services to secure guaranteed capacity.
Relationships are tested in times of trouble
The relationships between carriers, shippers and freight forwarders become critical during times such as these when the spot market increases dramatically and long term rates do not follow suit.
The bigger the spread between long and short term ocean freight shipping rates, the bigger the risk of cargo being rolled.
Again, however, experiences may vary.
The biggest shippers who have rates at the lower end of the market will be more protected from the risk of containers being rolled due to carriers needing to maintain good relationships with their most important customers.
However, for smaller shippers and those shippers who use freight forwarders, the spread between the long and short term markets presents a more clear and present threat to their supply chains.
Nowhere is the growing spread between long and short term rates more evident than on the Far East to North Europe trade.
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Source: Xeneta
