Long-term contracts continue to be expensive, says Xeneta
Avg long-term rate for contracts entering validity in past three months at least $1,900/FEU higher than avg spot rate
Photo by william william on Unsplash
Long-term rates on major trades are declining but not at the same pace as the spot rates, according to the latest update from Xeneta.
"Shippers are forced to sign long-term contracts and pay substantially more than spot market rates on some trades. On average, across the six main trades out of the Far East, the spot rate has fallen by 75 percent since the start of the year. On the long-term side, not all of the trades have seen a fall. On average, the long-term rate has fallen only by 13 percent across these six main trades out of the Far East."
The average long-term rate for contracts entering validity in the past three months is at least $1,900 per FEU higher than the average spot rate at the start of December. "In contrast, at the start of the year, all average long-term rates on these trades were below the prevailing spot rate with long-term rates offering a discount of at least $2,000 per FEU on these six trades."
The largest difference between long and short-term rates can be found from the Far East to the U.S. East Coast, the update added. "At the start of the year, the long-term rates were, on average, $4,900 per FEU lower than what was available on the spot market. Now, long-term rates are $5,030 per FEU higher (+ 237 percent) than spot rates."
Long-term rates on trades bound for both coasts have risen by about 11 percent since the start of the year. "However, the long-term rates to the U.S. were slower to rise than other trades and only peaked in Q2 due to the late start to the tender process on these trades than elsewhere."
The biggest change in the difference between short and long-term rates has been from the Far East to North Europe where long-term rates have gone from being $5,640 per FEU more expensive to now being $4,460 per FEU cheaper. Both the long and the short-term rates have fallen since the start of the year but with spot rates down by 83 percent and long-term rates only down by 24 percent, the latter have become the more expensive choice, the update added.
Container shipping to witness rate war in 2023
There is significant market volatility that continues to disrupt the container shipping industry, says Container xChange in its latest update. "With a significant oversupply of containers and a further influx of more TEUs in 2023, shipping lines continue to reduce vessel capacity and suspend services by considerable blank sailings."
Christian Roeloffs, Co-Founder and CEO, Container xChange says: "In 2023, there is a high possibility of an all-out price war. It doesn't seem that the capacity restrictions that we have seen in the past two years are due to return, so we'll just have ample capacity both on the vessel as well as on the container side. With the competitive dynamics in the container shipping and liner industry, I don't expect the big players, especially, to hold back, and we do expect prices to come down to almost variable costs. We also foresee market consolidation.
"Into the year 2023, freight forwarders will be able to go window shopping quite a lot, and there's going to be a lot of room for negotiation, especially in the early parts of the year. Contract rates will follow suit as spot rates fall significantly."
