Container shipping: Records Keep Falling as Industry Enjoys Best Markets Ever, says an article on Bimco.
Busiest on record
The start of this year has been the busiest Q1 on record, with volumes reaching 42.9m twenty-foot equivalent unit (TEU), a 10.7% increase on Q1 2020 – and a 6.8% increase compared with Q1 2019 – though still a slowdown from Q4 2020 when 45.9m TEU were moved.
Despite the quarter-on-quarter slowdown, monthly volumes in March were the highest on record globally with 15.5m TEU being loaded onto ships. This breaks the previous record, set in October last year when volumes reached 15.4m TEU. Prior to 2020, the highest volumes had ever reached were 15.0m TEU in May 2019.
BIMCO expects high volumes to continue into the upcoming peak season. However, once that has passed and we approach the post-pandemic world, demand looks set to slow as stimulus measures and restrictions are eased, leaving consumer spending patterns to find a new balance.
In today’s conditions, with equipment imbalance and port congestion compounded by the closure of the Suez Canal, the high volumes sent freight rates soaring to new peaks and left carriers struggling to keep up as they booked huge profits in the first quarter.
To meet market demands, carriers have been desperate to get hold of extra ships. However, the high demand has left the idle fleet at very low levels, leaving charterers with few options and tonnage providers with big smiles. Alphaliner estimates that on 10 May, 70 ships were idle, with an average capacity of 3,393 TEU. Add to that the ship in repair yards and the total rises to 171, with a combined capacity of 627,650 TEU, or 2.6% of global container-ship capacity.
The low number of available ships coupled with carriers’ desperation to secure tonnage, means the latter has proven willing to accept tonnage providers’ ever more onerous demands. A 700 TEU ship is now being chartered for just under USD 10,300 per day and, at the other end of the scale, an 8,500 TEU ship is fetching USD 62,000 per day. On top of higher prices, charterers are using their upper hand in negotiations to lock in contracts with a two- or three-year duration – sometimes even longer – at today’s rates, hedging their bets against a future downturn in the market.
High charter rates have been made much easier for carriers to swallow by developments in the freight market. The freight rates carriers are currently able to charge, both on the spot and long-term contracts, are more than enough to cover the higher charter rates.
Spot freight rates, which had been flattening out and even on some trades starting to fall, have risen again on the back of the Suez Canal closure and the subsequent disruption, as well as the knock-on effects of delays and missed sailings.
The most obvious example of this is on the Far East to Europe route, where, after peaking at USD 8,920 per forty-foot equivalent unit (FEU) in mid-January, rates had begun a gradual decline. To put this in perspective, at around USD 7,300 per FEU at the end of March, spot rates remained far above the level of previous years. However, from mid-April they started climbing again, reaching USD 9,581 per FEU on 27 May.
The downturn in spot rates from the Far East to the US coasts has also been turned around, rising to USD 4,607 per FEU to the West Coast and USD 5,922 per FEU to the East Coast on 27 May, both of which are above the previous highs of earlier this year.
A leading carrier estimates that its global average cost per FEU is around USD 2,000, illustrating just how profitable today’s market conditions are.
More importantly for many carriers, long-term freight rates are being locked in at high rates and, in some cases, just as with charter rates, for longer periods than usual. The long-term Far East to Europe rates have risen by 141.0% since the start of the year and are up 175.7% when compared with the same day in 2020. Into the US West Coast and US East Coast, they have risen by respectively 106.0% and 48.1%, since the start of the year.
Carriers have clearly had the upper hand in recent negotiations, but how they are choosing to play this varies, as some prioritize pleasing their high-value customers, lowering their potential short-term gains, while others are maxing out on the current conditions. On the losing side of this power, the battle is the shippers. They are paying record-high freight rates and, in return, are getting poor service, as schedule reliability drops to new lows. The long-term fallout of the specific carrier/shipper relationship will only be fully known once market conditions ease.
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