June 2023 FBX Index: Stable with Risk

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Seasonal expectations

In May, spot freight rates on key trade routes from Asia to Europe and North America aligned with seasonal expectations. However, North Europe to the US East Coast trade experienced a significant decline in spot rates, which is attributed to the ongoing normalization process specific to this trade. Unlike other major east-west trades that normalized by the end of 2022, the Atlantic trade has been delayed in this regard. Despite the sharp drops in May, the current rate level remains considerably higher than pre-pandemic levels. Going forward, it is anticipated that the rates will continue to decrease in the coming months. This interpretation is supported by fundamental supply/demand drivers and the underlying data.

Global demand

Container Trade Statistics’ global demand data for March 2023 indicated a 2.7% year-on-year decline in global demand measured in TEU*Miles. However, this decline marks an improvement compared to the previous six months, which saw volume declines ranging from -10% to -12%. Most major trade lanes showed positive growth in March, except for Asia to North America trade, which experienced a seventh consecutive month of year-on-year demand decline exceeding -20%. Operational bottlenecks that caused capacity constraints in 2021-2022 have now normalized. Global reliability in April, as per Sea-Intelligence data, was 64.2%, which is within the expected range. The average delay for delayed vessels globally was 4.3 days, comparable to or slightly better than March 2019 and March 2018 performance.

Market delayed 

In April, delays accounted for the removal of 3.9% of global capacity, which, although relatively high compared to pre-pandemic levels, is not unprecedented. The injection of capacity into the market moving forward will primarily come from the delivery and phased introduction of new vessels, rather than as a result of pandemic-related bottlenecks. The global orderbook suggests a potential 10% capacity increase in both 2023 and 2024, which may appear concerning considering expected demand growth. However, carriers are already taking measures to address this. For instance, the 2M carriers, Maersk and MSC, have added nine vessels to their Asia-Europe network, which extends the round-trip sailing time by a week. This injection of approximately 200,000 TEU of vessel capacity helps absorb overcapacity, reduce operating costs, comply with emissions regulations, and proactively mitigate the impact of future carbon taxation.

Major risk

The main risk for 2023 lies in the behaviour of the US consumer, rather than the injection of capacity by carriers. Although the physical volume of cargo in the US has been declining since September 2022, the inventory-to-sales ratio has not improved significantly. While some US companies have been reducing their inventories, others are facing challenges in doing so. Furthermore, there is a noticeable trend of US consumers shifting their preferences towards favouring services over goods, which started during the pandemic. This gradual normalization in consumer behaviour could potentially exert long-term negative pressure on spending on goods, posing a risk to the market.


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Source: Baltic Exchange


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