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'Delicate balancing act' sees long-term ocean freight rates holding steady

However, latest intelligence shows that 'spot' levels 'have finally begun to slide on key Far East-North Europe and Far East-US West Coast trades, suggesting the recent re-instatement of routes and tonnage is driving down prices, says Xeneta.

The carrier segment appears to be negotiating the coronavirus 'storm' with some success, at least in terms of safeguarding its vital long-term ocean freight rates, according to market analyst, Xeneta.

Its latest XSI Public Indices report, ,based on over 200 million data points crowd-sourced from leading shippers covering more than 160,000 port-to-port pairings, shows that after two months of slight rate declines - “although nowhere near as dramatic as industry observers had feared given the pandemic’s severity – the index crept up 0.1% in July. It is now just 0.1% down through 2020 and 0.8% down year-on-year.”

Difficult decisions

CEO of Oslo-based Xeneta, Patrik Berglund, attributed the relatively minor movements to the proactivity of owners, as they continue to perform a “delicate balancing act” with supply and demand.

“We’ve seen contracted rates holding comparatively steady while spot rates have actually been rising from April and through May and June,” he says, adding: “Given the short- and mid-term macro-economic situation that’s taken many by surprise. The key has been carriers conducting a delicate balancing act to remove tonnage and adjust routes in accordance with demand. However, it’s difficult to maintain that for the long-term and, let’s face it, the virus is not going anywhere fast - so what’s the next step?

“Our latest intelligence shows that spot rates have finally begun to slide on key Far East-North Europe and Far East-US West Coast trades, suggesting the recent re-instatement of routes and tonnage is driving down prices. That’s obviously a concern for carriers who face a difficult decision: keep reintroducing tonnage and try and gain market share, yet undermine rates, or withhold services and keep propping them up?

“So, don’t let the current minor fluctuations overshadow the major decisions that are being taken behind the scenes.”

Key developments

The XSI Public Indices’ regional analysis of major trading routes painted a mixed picture for July. After four months of decline, imports on the European XSI  increased by 0.2% (down 2% year-on-year), whereas the export benchmark registered its steepest fall since October with a decline of 2%. That said, it remains 3.4% up year-on-year. Developments in the Far East were negative, with a significant 4.5% fall in import rates and a 1% drop in the export figure. Year-on-year the benchmarks are up 1.6% and down 1.3% respectively.

US figures were varied for the month of July, with imports declining marginally by 0.1% (0.4% down against July 2019) while exports registered a healthy rise of 1.2%, reversing two months of decline. However, despite the increase, the index remains down 3.3% year-on-year and has now shed 2.2% of its value since the end of 2019.

Highly complex picture

Berglund concluded  that carriers have been working flat out on strategy and that has maintained a relatively solid rates course “in this most trying of times.” However, he underlined that they (the carriers) can’t control external factors and key indicators are undoubtedly a cause for concern.

“For example, the virus continues to ravage the US and, given the scale of unemployment, demand will remain subdued, creating an impetus to withdraw capacity. Meanwhile, consumer spending has fallen by 1.8% in China (against forecasted growth of 0.5%) and that suggests any recovery may take time. However, it’s also important to note that China reported impressive second-quarter GDP growth of 3.2% year-on-year, beating market expectations and reversing the decline of 6.8% in Q1.

“So, it’s a highly complex picture, and that creates a real challenge for both carriers to effectively manage rates and shippers to know what they should be paying to gain real value for cargoes. With that in mind, the latest market intelligence is absolutely key. Stay informed to stay ahead - that’s the only sure way forward.”

Companies participating in 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, and Thyssenkrupp, among others.

Source: Lloyds Loading List

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