Xeneta report: container turmoil driving freight rates to historic highs

2021 has got off to flying start for long-term contracted ocean freight rates, according to the latest XSI® Public Indices report from Xeneta. January’s XSI®, which gleans unique intelligence from crowd sourced real-time shipping rates, shows one of the highest ever monthly rate increases, with a global jump of 5.9%. This leaves the index 4.5% up year-on-year, with few signs of relief on the horizon.

XSI® effectively takes the temperature of the long-term contracted market, capturing the latest rates from leading shippers, utilising over 200 million data points, with more than 160,000 port-to-port pairings. That temperature is currently through the roof, with congested ports, a lack of equipment and lop-sided demand putting container shipping companies in a position of unparalleled strength during negotiations.

Breath-taking development

“The market is capturing headlines, worldwide, and far beyond the confines of the trade press, with unprecedented demand for containers driving up prices to new heights,” comments Xeneta CEO Patrik Berglund. “The high spot rates seen on key trading lanes over the past few months have cascaded down into contracted agreements, putting the squeeze on shippers worldwide.”

He continues: “The reasons behind this are complex, but it’s driven by strong export traffic from China that far outstrips imports, leaving containers marooned in, for example, European ports when they’re desperately needed back in the Far East. Added to that you have extreme congestion at some hubs – Maersk recently reported that between 30-35 ships were waiting to berth at Los Angeles/Long Beach – pushing up waiting times. This serves to further reduce already strained capacity, exacerbating the imbalance in supply and demand. And then of course there’s the ongoing impact of COVID-19, with increased online sales married to disruptions in supply chains and, unfortunately, outbreaks amongst essential workers. Again, Los Angeles/Long Beach has been impacted here, only heightening the sense of turmoil.

“This is an extreme situation and the rate of development is breath-taking. Negotiations are understandably difficult at present, so the latest market intelligence is more important than ever when trying to obtain optimal business value.”

Regional ramifications

The sense of turbulence is evident in the XSI® round-up of regional imports and exports on key corridors. In Europe, imports notched up their highest ever monthly XSI® increase, surging by 19.3% – mostly driven by flows from Asian origins – leaving the benchmark up 12.5% year-on-year. However, the supply demand imbalance is clearly evident on the export side, with a 1.9% fall, down 1.6% compared to January 2020.

In the Far East the picture was reversed, with exports climbing by an impressive 15.1% (leaving the index at an all-time high – up 17.3% year-on-year), while the import figure fell 4.6%, down 11.1% against this time last year. The US import benchmark showed somewhat less volatility overall, with a rise of 0.7%, moving up 0.5% year-on-year. Some US importers seem to have been able to compensate for the vast increases on the trans-Pacific with decreases on other import trades. However, exports fell by their second-largest ever recorded dip, with the figure dropping 6.2%. This moves the index down an eye-catching 17.7% year-on-year.

Challenge and opportunity

“What will happen next?” asks Berglund. “It’s impossible to say with any confidence, but we can no doubt expect further change. We know that Beijing is keen to stabilize rates and protect exports. So, if we begin to see importers abandoning exports from Asia due to extortionate rates, then expect the authorities to step in. But what measures will they, or can they, take?

“At the same time the demand opens the door to new entrants, as we can already see on the Far East – North Europe trade, with the arrival of China United Lines (CU Lines). Although this is a relatively small operator it still highlights a sense of opportunity. However, that’s not being felt by all, with Pacific International Lines (PIL) advising its creditors to back its latest restructuring plan, or face watching the business slide into liquidation. So, not every liner is currently enjoying the high life.”

Flexibility pays

With the ongoing pandemic situation, the opportunity for a significant geopolitical reset, and continued economic uncertainty, formulating a clear approach for the next phase of rate development is problematic, concludes Berglund. The Xeneta CEO advises “flexibility in procurement strategies” for shippers, trying to maintain steady supply chains while not committing 100% to long-term contracts at all-time high rates.

“A limber approach is probably the best way to navigate this dynamic rates environment,” he says, “utilising the very latest market insights to make the best business decisions and seize opportunity wherever possible. One thing is for sure, 2021 will be another gripping year for all stakeholders in this truly unique segment.”

Companies participating in Oslo-based Xeneta’s crowd-sourced ocean and air freight rate benchmarking and market analytics platform include names such as ABB, Electrolux, Continental, Unilever, Lenovo, Nestle, L’Oréal, Thyssenkrupp, Volvo Group and John Deere, amongst others.

View the full XSI® Public Indices report here.