The spot freight rate of container ship continues to fall, and has recently been lower than the long-term freight rate. A large number of customers are beginning to consider renegotiating the contract or even breaking the contract.
Recently, Norwegian shipping analysis platform Xeneta’s XSI Shipping Index, shipping consultancy Drewry’s World Container Index (WCI) and Freightos Baltic Freight Index (FBX) have all shown that Asia to Northern Europe and trans-Pacific Freight rates on routes have either declined or remained flat.
WCI quotation data shows that the freight index from Asia to the West United States fell sharply by 3% to $8,378/FEU last week, while the freight rate to the East United States remained unchanged at $10,695/FEU. Spot freight rates to Northern Europe range from $9,784/TEU at WCI to $10,660/TEU at FBX.
It is reported that the freight price per FEU of some containers on the US West Line has been less than 7,000 US dollars, and the spot price has fallen below the long-term contract price, showing an inversion phenomenon. The spot price on the European line is also in danger of sticking to 10,000 US dollars.
At the same time, Ningbo Export Container Freight Index (NCFI) report reflects the industry's pessimism about trade. NCFI stated that some shipping companies took the initiative to lower freight rates to attract customers to book space, pushing spot prices down. It also said that transportation demand on North American routes has not improved, and there is a clear surplus of space, resulting in increasing price declines.
As the drop in spot freight prices has not stopped, customers are also beginning to seek to renegotiate with shipping companies. A customer survey conducted by Xeneta shows that 71% of the companies surveyed believe that if market conditions change significantly, they will seek to renegotiate long-term contracts; while 11% of the companies surveyed said they are prepared to default and look for a more cost-effective deal; and only 8 % of the companies surveyed said they would continue to fulfill existing contracts no matter how the market changes.
In response, some shipping companies stated that they have not received similar requests. Entering the traditional peak season of the third quarter, we usher in the small peak season for back-to-school shopping, followed by shipments during the year-end shopping seasons in Europe and the United States such as Thanksgiving and Christmas. It is expected that cargo volume will gradually increase, supporting freight rates or even rising. Most of the long-term customers are large direct merchants. , including large European and American retailers, etc., in order to ensure space and control costs, both shipping and cargo parties will perform the contract in accordance with the spirit of the contract and will not rush to modify it.
Some shipping companies believe that long-term contracts can help control operating costs and ensure the availability of shipping space. In the past, most long-term contracts signed by shipping and cargo parties were relatively loose. This year's long-term contracts have significantly increased their binding force, and there are no amendments in the contracts. It is not easy to revise the terms; in addition, the conditions of each contract are different. Currently, only the US West Line has a spot market freight rate that is lower than the long-term contract price, and it is about the same. Most other routes are still higher than the long-term contract price. It is impossible for customers to request changes to the long-term contract price now.
People in the shipping industry said that container shipping companies have made huge profits by taking advantage of high freight prices in the past two years and will not easily cut prices to compete. They can stabilize freight prices by regulating shipping routes. Currently, container freight rates are still at a high level. The SCFI Freight Index shows that the current freight rates are four times the pre-epidemic price. Therefore, half of the price is still a lot of profit.
However, in order to stabilize freight rates, it has been reported recently that some shipping companies have successively canceled some voyages on European and American routes. According to Drewry statistics, the world's three shipping alliances canceled a total of 48 voyages from June 20 to July 24, and the 2M alliance canceled 23 voyages. , THE Alliance canceled 19 voyages, and Ocean Alliance canceled 6 voyages.
Since the beginning of this year, the trend of container shipping freight prices has been erratic and changeable. Industry insiders said that there are many factors that have caused the recent changes in European and American spot prices, including the Shanghai lockdown effect, supply chain disruptions, weak demand in the United States, etc. Unless the spot price drops more than expected and It will take a period of time for the market to undergo fundamental changes, but overall, the best time for the container shipping market is over.
