Shippers are facing increasingly difficult negotiations over long-term contracted rates in a market described as nothing less than “red hot”. Rates climbed by a further 2.2% in March, consolidating gains of 9.6% in February and 5.9% in January. The findings, disclosed in Xeneta’s latest XSI Public Indices report, mean that container ship operators are currently commanding rates that have soared by an extraordinary 18.6% since the start of the year (up 17.1% against March 2020). This, says Xeneta, which crowd sources its data from leading global shippers, is buoying the fortunes of carriers while causing cargo owner consternation.
The XSI gives a real-time snapshot of the latest rates developments, utilising over 220 million data points, with more than 160,000 port-to-port pairings. With continued high demand exacerbated by coronavirus, port congestion and a lack of equipment, shippers are being forced to navigate an increasingly daunting rate landscape, while carriers, notes Xeneta CEO Patrik Berglund, are “enjoying their moment in the sun.”
He commented “It really is an extraordinary time for an industry that has faced some very difficult years recently, constantly juggling capacity and demand while fighting one another for market share. Now, it seems, the carrier community is being dealt winning hand after winning hand, and the financial ramifications of this red-hot streak are there for all to see.”
Berglund points to the year-end results for a slew of the industry’s biggest names. French carrier CMA CGM recently posted a net profit for 2020 of $1.75bn, compared to a loss of $229m the previous year. Maersk recorded a colossal profit of $2.9bn, while Hapag-Lloyd raised its game from a profit of $418m in 2019 to $1.1bn last year. Zim reversed years of previous losses to post its largest ever annual profit of $524m.
“And industry insiders do not see it as a short-term aberration,” Berglund continued. “US retail sales are expected to grow by 8% this year, while new GRIs arriving in April could bolster rates by a further $1,000 FEU. At the same time Peak Season Surcharges of around $250 will be introduced on North Europe – Far East routes. The carriers are in a strong position and are working to maintain that, although spot rates (which have been driving long-term increases) are softening a little.
“There’s a newfound confidence in the market,” Berglund said “as shown by Hapag-Lloyd CEO Rolf Habben Jansen’s recent comments that fundamentals should remain ‘solid’ for the next couple of years, not to mention Evergreen’s announcement that it will boost fleet numbers by another 20 15,000teu vessels. This is a boldness that speaks volumes. Unfortunately, that also means shippers looking to negotiate contracts are doing so from a position of weakness. In fact, we’ve heard that carriers are becoming increasingly selective about their customers as they seek to optimise future earnings. 2021 is, without doubt, a testing time to be a cargo owner.”
Although the XSI continued its climb in March, regional fortunes were more mixed than in February. In the US, for example, the import benchmark fell by 1.7% while the export figure plunged by 7.3% (although February had seen a giant 17.6% gain). This leaves the former up 4.8% year on year, while the latter is down 7% against the same measure.
The Far East saw a mixed performance, with imports falling away 9.1%, while exports recorded an impressive gain of 6.4%. Both figures are strongly up year on year, with imports rising by 13.8%, while exports have surged by 32.4% compared to March 2020. In Europe both benchmarks showed positive developments, as imports climbed by 7.3% (up a massive 31.2% year on year) while exports edged up 0.5%, translating to a rise of 7.8% over the last year.
“It’s difficult to see the light at the end of an increasingly dark long-term contracted rates tunnel for shippers at present,” Berglund concluded. “Capacity is in short supply while demand is almost universally strong. All this is further exacerbated by the recent debacle in the Suez Canal. We must also consider that vessel orders were low while rates were depressed and, with long lead times for new deliveries, we’re not expecting to see an injection of tonnage sufficient enough to upset the current market dynamic anytime soon. That said, this segment has a habit of surprising us, so it’s imperative that all stakeholders in the container shipping value chain keep up to date with the very latest intelligence to ensure optimal value from difficult negotiations. There are issues far beyond the industry’s control – from coronavirus to geopolitical fluctuations – and, as we all know, these have a habit of creating waves.”