Despite the weak supply and demand balance, container spot prices remain high!
Container spot prices are high despite weak supply and demand
It was learned from BusinessDialogue that in BIMCO’s “Shipping This Week” this week, chief shipping analyst Niels Rasmussen pointed out that despite a 70-80% drop in freight rates and a worsening supply-demand balance, liner operators are still able to maintain rates higher than pre-pandemic levels.
“The Shanghai Container Freight Index and the China Container Freight Index have fallen by 81% and 72% respectively since January last year. Despite the worsening supply-demand balance, they are still higher than in 2019,” commented Niels Rasmussen.
Although Far East exports were relatively strong in March 2023, due to a market slowdown that began in the second half of 2022, first-quarter exports fell 8.5% year-on-year.
As a result, exports were only 2.1% higher than in the first quarter of 2019, with exports to the three major regions, which account for 80% of the total, totaling a 0.1% decrease, with the Far East increasing by 0.6%, Europe decreasing by 4.5%, and North America increasing by 2.6%.
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Except for the United States, Australia/New Zealand, and Lagos (Nigeria), spot rates to all destinations in May 2023 are more than 10% higher than in May 2019. To the Mediterranean, Santos, Dubai, and Durban, they are roughly twice as high as in May 2019.
Over the past four years, the size of the container fleet has grown by 16.9%, reaching 26.2 million TEUs as of April 2023, an increase of 3.8 million TEUs from April 2019.
Rasmussen pointed out: “The average sailing speed of container ships in April 2023 was 3.4% lower than in April 2019. This limits the supply that the fleet can deliver. However, the growth of the total available fleet supply still greatly exceeds Far East exports.”
Nevertheless, compared to 2019, the average spot rates for exports from Shanghai (SCFI) and exports from China (CCFI) have still risen significantly. Recently, even liner operators seem to be able to prevent the decline in rates and achieve stability.
Four years ago, there were about 90,000 TEUs of idle ships, but this cannot explain the reason for the increase in freight rates, nor can it explain how liner operators can stabilize freight rates.
Although the overall supply and demand have developed, liner operators must more effectively match capacity with cargo demand and/or each liner operator has introduced new tariff rules.
“Regardless of the potential reasons, we can conclude that despite a 70-80% drop in freight rates and a deterioration in supply and demand balance, liner operators have been quite successful in keeping freight rates at levels higher than before the pandemic,” Rasmussen said.
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