(Commonwealth) _ The maritime shipping industry has been facing significant challenges in recent times due to a variety of factors, including excess capacity and fluctuating demand. Spot prices have been falling steadily, indicating an oversupply of shipping capacity relative to demand. This has led to a highly competitive market where carriers have struggled to maintain profitability.
Xeneta CEO Patrik Berglund has stated that carriers have mismanaged the market by not adjusting their capacity quickly enough to match demand, which has resulted in a glut of shipping capacity and falling prices. However, the situation appears to be improving, with spot prices stabilizing and even beginning to grow in the first and second quarters of 2023.
Despite this, spot indices are still falling week after week, suggesting that the market bottom remains elusive. This means that carriers will continue to face challenges in maintaining profitability until demand catches up with capacity. Given the uncertainty in the spot market, some shippers may prefer to lock in yearly contract rates instead. Contract rates offer more stability and predictability than spot rates, as they are negotiated in advance and remain fixed for the duration of the contract. In 2023, yearly contract rates may be predicted based on trends in the spot market, which can help shippers make informed decisions about their shipping strategies. Overall, the maritime shipping industry is facing a challenging market environment, but there are opportunities for carriers and shippers who are able to adapt to changing conditions and make strategic decisions based on market trends.
Carriers are approaching this year’s trans-Pacific contract negotiation season with a very poor hand against a landscape where contract revenues are more crucial to their bottom lines than spot revenues. Various spot indexes report varying rate evaluations, but the overall directional trends are the same. The Freightos Baltic Daily Index (FBX) on Friday assessed spot prices on the China-West Coast shipping route at $1,040 per forty-foot equivalent unit. This represents a significant drop of 94% year over year (y/y) and 30% from March 2019, which was prior to the onset of the COVID-19 pandemic. The decrease in spot prices highlights the excess capacity in the shipping industry and the lack of demand for cargo. This oversupply of capacity has led to lower prices, and carriers have struggled to maintain high levels of vessel utilization. As a result, carriers may need to re-evaluate their capacity expansion plans to ensure they are aligned with market demand.
Friday’s China-East Coast pricing was $2,286 per FEU, according to FBX (down 17% from pre-COVID and down 87% year over year). The trans-Atlantic market continues to perform significantly better than the trans-Pacific market. On Friday, the westbound Europe-East Coast assessment for FBX was $4,418 per FEU, down just 36% year over year and up 89% from March 2019. Sea-Intelligence analyzed the Asia-North America commerce corridor to determine the extent of the capacity-demand imbalance in the shipping industry. The paper, released on a Sunday, focused on the second half of 2022, a period in which spot rates decreased considerably. The report calculated the percentage difference between capacity expansion and demand growth during this period. The findings revealed that there was an excess of capacity in comparison to demand for cargo, as reflected in lower prices and lower vessel utilization. This indicates that carriers have added too much capacity without considering market demand, resulting in an imbalance in the market. The report suggests that until this imbalance is corrected, the market bottom will continue to remain elusive.