Long-term contract rates fell 1.1% in September, marking the first decline since January and one of only three declines in the past 21 months, recent data from the Xeneta Shipping Index (XSI) shows. However, analysts at Oslo-based Xeneta, which aggregates data from the world’s leading shippers and freight forwarders, expect “it won’t be the last” with market fundamentals suggesting that the “happy days” of tariffs steadily increasing for carriers could loom. to an end.
“It had to happen sooner or later,” said Xeneta CEO Patrik Berglund. “We have seen a steady, and sometimes dramatic, rise in long-term contract rates since the early days of the pandemic. This has fueled record profits for carriers, much to the dismay of a financially-struggling shipper community. But, over the past two months, clear signs of a market shift have emerged. »
The Great Divide
He explained: “Spot rates have fallen across the board and have, on some key corridors, plunged over the past month as falling demand and easing port congestion take effect. The gap between the long and short-term market is now wider than ever on many trades, despite a record number of white starts in what would normally be considered a peak season.
“In short, this means ‘the shoe is finally on the other foot’ when it comes to upcoming contract negotiations for the fourth quarter and beyond. Shippers are on the rise as carriers will now compete to secure volumes in the face of falling global demand. Therefore, we expect this month’s relatively marginal decline to accelerate at the end of the year. »
The time of trust
That said, the industry should keep in mind that this month’s and future rate cuts should be seen in the context of a market overspeeding for an extended period, Berglund pointed out.
Despite the drop, the XSI is currently 112% higher than it was in September 2021.
“Much of the focus has been on profits and performance,” Berglund said, “but it could be useful to shift to an atmosphere of building trust and building strong relationships among stakeholders. This attitude would certainly help around the negotiating table.
In addition to painting an overall picture of the latest rate developments, the XSI also provides detailed information on regional markets. And, unlike recent months, nearly all major benchmarks are pointing down for September.
In Europe, the import index fell by 1.7%, while exports fell slightly by 0.1%. However, the month-over-month picture is clouded by dramatic year-over-year growth in long-term contracts, with rates up 123.7% for imports and 75.5 % for exports compared to September 2021. Decreases were also seen for the Far East import and export benchmarks, with the former dropping 1.2% and the latter 3% (the largest drop of this month). The figures reflect lower volumes across the board, with cargo entering the region falling 8.5% and outgoing slipping 1.4%.
The US export index is the only benchmark to buck the trend this month, with marginal growth of 0.3%. Imports, meanwhile, were down 0.7%, but should be seen in the context of a rate index up 179.7% year-on-year. And that leads to Berglund’s final observation.
The bigger they are?
“There’s a very long way to go for rates to come down before we start talking about major corrections in line with pre-pandemic levels,” Berglund said. “Of course, it could be a case of ‘the bigger they are, the more they fall’, but carriers have been proving very adept at managing the supply-demand balance lately, so nothing is certain here. We we certainly expect rates to come down in the near future…but by how much?Keep watching the latest data to find out.