As shippers want more affordable new contracts and mid-term rate reductions, Xeneta’s long-term XSI shipping index declined last month for the first time since January and is anticipated to fall even further in the months ahead.
Shoe on other foot
According to Xeneta CEO Patrik Berglund, the small 1.1% drop in the XSI last month “won’t be the last,” and market fundamentals indicated that the erosion of long-term contract rates will “take up the pace as the year draws to a conclusion.”
“In sum, this indicates that when it comes to impending contract discussions for Q4 and beyond, the shoe is finally on the other foot,” he said.
He continued, “Shippers are in the lead, and carriers will now compete to lock in volumes in the face of weaker global demand.”
Short-term contract
As demand diminishes throughout their networks, maritime carriers are increasing the proportion of spot and short-term contract cargo they transport.
Container lines have worked to lock in as much business as they can on multi-year or long-term contracts over the previous two years. For example, Maersk boosted the share of its long-haul traffic under long-term contracts to roughly 70%.
Carriers were able to set ever-higher long-term contract rates and determine their terms and conditions, including the amount of free storage time at terminals prior to detention and demurrage charges being imposed, by taking advantage of strong market conditions and capacity shortages on routes affected by port congestion.
Demands fall off cliff
Indeed, The Loadstar received many complaints that carriers had turned their backs on smaller forwarders and NVOCCs, refusing to honour existing three-month agreements and ignoring all communications, despite, in many cases, having previously enjoyed their loyal support.
As a result, Xeneta’s September XSI long-term contract headhaul reading for Asia-Europe surged by a whopping 124% year on year, and an eye-popping 180% for Asia to the US.
And the sharp downturn in the market in the past few weeks has seen carriers scrambling for cargo and having to tap the spot market to supplement disappointing contract volumes.
“It’s unbelievable how demand has fallen off a cliff in the past few weeks,” he said, “and our blanking measures don’t really seem to be having much impact.”
“So I think we could see a few loops temporarily suspended, as they have done on the transpacific,” he said.
Major corrections
“The carriers are back on the phone again, begging for our business, and the rates are coming down all the time,” one forwarder contact told The Loadstar. “But there are a couple of lines we won’t be supporting again after the way they treated us,” he said.
Nonetheless, both spot and contract rates are still considerably higher than before the pandemic.
Mr Berglund said: “There is a very long way for rates to fall before we start talking about any major corrections in line with pre-pandemic levels.”
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Source: The Loadstar
