⊗

Container freight market momentum appeared to be tailing off as the year drew to a close. But some recent developments suggest that 2022 will offer little respite to shippers. The Freightos Baltic global container freight index bottomed out at $9,202 on November 19, some 17% lower than the September peak. It has subsequently recovered by a thin 4% to $9,550 on December 10. The headhaul China / East Asia to the North American West Coast peak season has passed now as bookings for pre-Christmas delivery are impossible. From a September 10 peak of $20,586 the index fell to $14,185 on November 19, 32% down. But it has gently risen 5% to $14,924 on December 10. The other main headhaul route, from China to northern Europe via the Suez Canal, has also bounced back. Having peaked at $14,703 on October 1, it fell to $14,219 on November 12 before recovering to $14,498 on December 10. Meanwhile in the Atlantic, both the eastbound and westbound routes rose in November but then gave up their gains as lockdowns affected buyer confidence. The westbound route from Northern Europe to East Coast North America gained 11% from $6,869 on September 24 to a peak of $7,595 on November 12 then slid 5% to $7,219 on December 10. The eastbound route from East Coast North America to North Europe rose 51% from $387 on November 5 to $583 on November 26 before retreating 19% to $471 on December 10. There is a parallel with the iron ore shipping markets which moved from being nearly entirely agreed on an annual basis to being almost entirely agreed on a spot basis in the boom of the 2000s Liner companies are reporting tight availability in advance of Lunar New Year, offering rates with no more than two weeks’ validity as the market becomes very short-notice due to the virus and the looming lunar celebrations in Asia which always have a seasonal effect on trade. Maersk, for instance, is reported to be telling some customers that they can only make spot bookings from January 1, completely removing the principle of contractual volumes from the market. This year there is the added effect of the Winter Olympics in China, in advance of which manufacturing and other polluting industries have been told to dial back production to improve air quality. The upshot is that freight forwarders and contract buyers of freight have little forward view on where freight rates will be by Q2 next year. There is a parallel with the iron ore shipping markets which moved from being nearly entirely agreed on an annual basis to being almost entirely agreed on a spot basis in the boom of the 2000s. The consequence of this was that instead of using period contracts to control freight rates, miners and charterers moved to trading iron ore and freight derivatives to manage spot price risk. If the container freight market moves in the same way, then we are bound to witness an equivalent increase in container freight derivatives as shippers try to manage volatility in their shipping costs. A further consequence of this development could be the opening up of the transpacific market to more operators. Already this year the lack of tonnage caused by congestion especially at US ports, has led to a number of independents offering transpacific services. A spot market in unitised freight will undermine the advantage handed to lines with economies of scale, allowing smaller ships and smaller operators a level playing field in rates, and leaving them to manage their costs as best they can. Competition authorities will presumably be pleased and relieved, seeing as the market until recently appeared to be consolidating into an oligopoly of the three major alliances. Meanwhile in North America, the military and the national guard are offering limited berths to commercial users as part of a concerted effort to decongest container ports. Volumes continue to rise, especially for imports. The Port of Long Beach reported that it handled 8.6 million teu during January to November this year, a new record for a single year even before December’s volumes are added. The total for the first 11 months is 18% higher than in 2020. Investing: an equinoctial consolation As 2021 draws to a close, there are clear winners and losers in the freight markets. Container operators have the most to celebrate, but handysize bulker owners will perhaps be the most content, knowing that their returns probably lead the market on a dollar per dwt basis. Tanker owners will be weeping under the mistletoe. But as the old saying goes, the time to invest is when there is blood on the streets, so maybe those with pots of cash from box and bulk plays should be looking to diversify counter cyclically into tankers. Furthermore, with inflationary pressures rising, real assets look attractive to investors who fear the destruction of value to paper assets that inflation can bring. So it’s not a bad time to be considering public equity sales either. There will still be all to play for in the New Year.

Rise of the container spot market

Liners holding the whip hand are pushing clients towards longer contracts.

⊗

To continue reading, please login below or subscribe here.

Read Next

Costs for armed guards onboard rocket

Reining in black swans

March 2024 Review

March’s tanker rollercoaster

A sense of euphoria sweeps through dry bulk

Costs for armed guards onboard rocket

Reining in black swans

March 2024 Review

March’s tanker rollercoaster

A sense of euphoria sweeps through dry bulk

Maritime CEO Forum Singapore

Maritime CEO Forum Monaco

Advertising

Press Releases

Splash

Splash Extra

Splash Special Reports