Soaring Ocean Container Rates as New Build Orders Seen as Needed to Plug the Gaps in Services

WORLDWIDE – The attitudes of those who analyse the markets are by definition just that, analytical. So when one describes the latest trends in ocean container shipping rates as 'breath taking' it may well be time to sit up and take notice.

The phrase comes in the latest release from Patrik Berglund, CEO of Oslo-based Xeneta as July saw the uncharted waters of a long-term contracted rates surge equivalent to close to one third. According to the latest Long-Term XSI® Public Indices from Xeneta, which crowd sources real-time rates data from leading shippers, the global index recorded a staggering jump of 28.1%, blowing the previous record (a 11.3% rise in May 2019) out of the water.

The benchmark now stands 78.2% higher than in July 2020, up 76.4% in 2021 alone and with companies such as ABB, Electrolux, Continental, Unilever, Nestle, L’Oréal, Thyssenkrupp, Volvo Group and John Deere contributing to the ocean and air freight rate benchmarking and market analytics platform, nobody can doubt that the situation is serious.

In July the XSI® revealed unprecedented shifts, with rates in Europe leading the way. The import benchmark spiked by a massive 49.1% driving prices to an all-time high (the spot market set the course for the jump, with Freight All Kind, FAK, rates surpassing $13,000 per FEU). Imports now stand a towering 120.3% up year-on-year. Exports also recorded their largest ever monthly increase, although by a more ‘modest’ 16% (up 39.8% since July 2020).

The Far East indices followed suit, with a record breaking 24.2% rise in exports (110.4% up year-on-year) while imports edged up, relatively speaking, by a still impressive 7.3% (43.2% higher than in July 2020). In the US, the XSI® revealed a 17.7% surge in imports, representing another all-time high, taking the benchmark to 61.2% above July last year. Exports also demonstrated strong gains, with an 11.1% climb (up 12% year-on-year, but 18.4% since the start of 2021). Berglund comments:

“This is a truly breath-taking development. We’ve seen a combination of high demand, under capacity and supply chain disruption (in part down to Covid and port congestion) driving rates ever higher this year, but nobody could have anticipated a hike of this magnitude. The industry is in overdrive.

“Reports suggest that more than 300 vessels have already been ordered this year to try and redress the balance. However, these obviously won’t come on line for some time, so it’s difficult to see, unless something radical transpires, any relief on the immediate horizon for the shipper community. Quite frankly, I’ve never seen anything like it."

Despite what Berglund describes as ‘a crazy market’ he notes that the majority of Xeneta users shipping large volumes report long-term contracts are mostly being honoured by carriers. This, he says, is better than the beginning of the summer, when the fear of rolled cargoes and broken agreements was front of mind for a stressed shipper community, continuing:

“However bear in mind that volume flexibility is totally gone, with shippers committing to maximum quantities to secure positions on board. Furthermore, all around the world, but especially in the US, shippers are playing safe and building buffer agreements to ensure they’re covered for the holiday season. As such a ‘bullwhip effect’ is coming into play, as shippers order more to protect against delayed shipments and rollovers, further disrupting the supply chain. But, of course, who can blame them, they see it as the only way to stay ahead and make sure Christmas is saved.

“[Despite the glut of new build orders for container ships] shippers need short-term solutions, with greater reliability, easier negotiations and more sympathetic rates soon, rather than the promise of long-term relief. We’re already seeing some taking matters into their own hands, chartering vessels and joining with purchasing associations like XSTAFF, which supports CULines, in attempts to free themselves from the grip of traditional carriers. But that’s clearly not for everyone.

“It’ll be interesting to see how established players react to the red-hot market. Fortuitously, Evergreen ordered a dozen 24,000 TEU vessels back in 2019 and some will touch down this year, eventually boosting the firm’s capacity by 18%. There’s also word that Taiwanese carrier Wan Hai may re-enter European trades with its smaller vessels to take advantage of attractive rates. So, changes are on the horizon, but how significant will they will be in terms of the overall picture?

“For the time being carriers have the fundamentals firmly in their favor and are enjoying time in the sun, as illustrated by recent earnings reports from major players such as from Maersk and Hapag Lloyd.”