Continued weak market for ocean freight
Over the past month, the container shipping market weakened further
From a demand perspective the latest data from Container Trade Statistics (CTS) covering cargo loaded in January 2023 shows global demand measured in TEU*Miles to have declined -9.1% year-on-year. The problem here is that Chinese New Year (CNY) is the largest seasonal impact on container shipping volumes each year, and the date for CNY shifts. In 2023 it was January 22nd whereas in 2022 it was on February 1st. Seasonally there tends to be a spike in cargo just before CNY and a slump right after. Hence, seasonally, we should expect January volumes 2023 to be lower than 2022 due to this change in CNY. It means that getting meaningful global demand development data requires the combination of January and February data.
What can be done instead is to look at the CTS demand data for all trades between regions, but to exclude the export from Far East. These other trades are not impacted by CNY and hence a year-on-year comparison is more straightforward. In this case global TEU*Miles (excluding FE exports) have declined -6.7%. This is the largest year-on-year decline since the pandemic impact in spring of 2020. The data therefore shows that the market downturn is indeed quite widespread and did continue into 2023.
The spot rates continue to decline
The spot rate developments as per Drewry’s WCI index also reflect this continued market weakness. The overall index has declined -10% over the past month from February 7th to March 7th. Looking a bit deeper into the details Asia-Mediterranean rates have at -14% declined more than Asia-North Europe rates which have seen a -8% drop. A similar pattern is seen in the Pacific where Asia-USEC rates are down -13% versus USWC rates which are down -6%. The dynamic in both trades is likely the same. Mediterranean as well as USEC bound cargo had seen a larger than usual rate premium compared to North Europe and USWC. This premium is gradually being reduced. It is not yet back to pre-pandemic normality though, and the expectation should therefore be that Mediterranean and USEC rates will continue to show a weaker development than North Europe and USWC.
The Atlantic head haul rate from Europe to USEC has begun to decline in earnest. Having enjoyed a long period of high sustained rates, the drop in vessel utilization is now impacting rate levels as well. Over the past month the WCI spot rate is decreased.
Shippers have not adjusted in time
This weakness in spot rates is mainly due to excess capacity in the markets. The container lines have indeed cancelled a significant number of sailings in recent months, also termed blank sailings, but despite this, the amount of capacity withdrawn did not match an even sharper reduction in demand. We saw in spring 2020 how the carriers were able to almost pull capacity out instantly of the market matching a rapid demand downturn. Presently they are not fully matching that behavior and consequently rate levels keep declining.
Capacity data from Sea-Intelligence shows that the carriers recently are blanking sailings with a lead time mainly of just 1-2 weeks making planning more difficult for the shippers. This behavior on the part of the carriers is an indication that the carriers internally in the alliances are not well-aligned in their approach to managing the market downturn, and hence their capacity management efforts become a matter of “too little, too late”.
But given that the market downturn is not yet ending, it also means that shippers in the coming period should expect further large amounts of blank sailings announced with relatively short notice – and that this is a behavior which should be expected from all carriers and alliances.
