According to Xeneta, long-term ocean freight costs may have bottomed out following a year of consistent, frequently dramatic monthly drops.
The Oslo-based market analytics company has stated that the latest General Rates Increases (GRIs) from carriers appear to have held “relatively firm”, pushing spot rates up above long-term rates on key corridors.
As such, long-term prices may now follow suit and rally, meaning “now is the time” for cost conscious shippers to assess strategies and negotiate new contracts.
Looking at the key Far East to North Europe trade lane, Xeneta’s real-time data shows that even through spot rates have fallen by around $100 per Forty-Foot-Equivalent-Unit (FEU) since early August’s GRIs, they are still around a third higher than prices in early July.
This is in contrast to GRI moves earlier this year, which largely failed to influence a market hamstrung by weak demand and rampant over capacity.
Xeneta analyst, Emily Stausbøll, said: “This is a definite, eye-catching change, and shippers should view this as a bit of a wake-up call.”
According to Stausbøll, cargo owners have become used to declining prices and, as a result, have transferred volumes to the spot market, often postponing any steps to sign new long-term contracts.
She calls this a “smart play” when spot prices are below contractual rates and appear to be on a downward trend. Stausbøll noted, however, that market dynamics appear to be changing: “Spot rates on this major trade lane now command a premium of around 20 per cent over contracted rates, and this corridor is not an exception.
“When spot rates start rising there’s usually a small lag and then long-term rates emulate them. If we look back to late 2019, the last time spot rates fell below long-term rates, GRIs in November helped push spot rates up and on 1 January 2020 long-term rates climbed by $250 per FEU.
“That’s not to say the exact same thing will happen now, but it’s certainly a lesson shippers need to bear in mind.”
A significant development is already occurring, according to Xeneta’s statistics. Prices for long-term contracts signed during the last three months continue to plummet, with the Far East and North Europe trading at $1,400 per FEU on 21 August.
However, recent contract statistics suggest a modest rise of $30 per FEU. The uptick is the first since April.
Stausbøll added: “This implies that contracted rates have bottomed out and, when we look at the spot rate development, could now be on the way up.
“So, if you’re a savvy shipper looking to lock in volumes ahead of peak season at the best prices, why not negotiate new contracts now when the rates are low? It may just pay to ‘strike when the iron is hot’.”
In terms of current value, Xeneta’s research shows that just a year ago, contractual prices per FEU on this route stood at a “staggering” $9,100. Current prices of $1,400 per FEU, by comparison, are ‘hugely beneficial’ to lock in.
Stausbøll concluded: “It’s unrealistic for shippers to think rates will keep falling, “especially when carriers are blanking sailings and working largely ‘as one’ to try and address the subdued levels of their all-important long-term rates.
“It’s too early to say if this is the watershed moment when the market turns, but it definitely represents a significant shift. It’ll be fascinating to keep watching the data and see how the market develops.”