In almost all markets, what comes up must also come down. The issue facing anyone looking into the outlook at the start of the year would have been whether the liner market would have learned from any of the presumed mismanagement of capacity pre-2020 and stem any losses on spot freight prices as soon as capacity, or demand fundamentals, had shifted. 

The key fronthaul lanes make for depressing reading. Between 31 August to 3 October, FBX01 China/East Asia to North America West Coast is down -57.49%, FBX11 China/East Asia to North Europe is down -30.08%, FBX13 China/East Asia to the Mediterranean collapsing dramatically down -41.80%.

Moving forward to now, we see extraordinary haemorrhaging of spot rates. These rates, at the start of the year, would have been high enough to support dramatic inflation in contract prices being issued by liners (and in-turn time-charter rates being offered and fixed by ship owners). The key fronthaul lanes make for depressing reading. Between 31 August to 3 October, FBX01 China/East Asia to North America West Coast is down -57.49%, FBX11 China/East Asia to North Europe is down -30.08%, FBX13 China/East Asia to the Mediterranean collapsing dramatically down -41.80%.

Declining value on the futures contract is essential, with futures contracts now well through three-year fixed price deals signed between liners and BCOs at the start of the year. This makes the futures price incredibly attractive to hedge prices as far out as December 2024, without overlapping or negating physical contracts already active in the container market.

In terms of price action, there has been an equally dramatic decline, particularly inside of 2022. FBX01 Q4(22) prices from 31 August have dropped 56.46%, with the Q4 now valued at $2,503/FEU – this is an enormous 87.84% decline from market highs last year. The Cal23 has followed this down 52.74% with value at $2,800/FEU. Declining value on the futures contract is essential, with futures contracts now well through three-year fixed price deals signed between liners and BCOs at the start of the year. This makes the futures price incredibly attractive to hedge prices as far out as December 2024, without overlapping or negating physical contracts already active in the container market.

The big shift has been towards the buy side in recent weeks. This is as corporates who had previously relied on a ‘wait and see’ approach to physical contracts stand to benefit for forward rates that are back in line (albeit a bit above) 2019 norms. Also in line with this has been a distinct shift back towards index-linking – to the extent that a number of long-term contracts either renegotiate down to lower market levels at the end of 2023 or have a floating component in them already for 2023 and 2024.

We’ve seen similar moves on Asia-Europe routes, which have up until now held up relatively well versus transpacific. FBX11 China/East Asia to North Europe trimming down by -29.73% and the Cal23 (whilst already heavily discounted) down a further 13.96% to $6,625/FEU for call of 2023. FBX13 China/East Asia to the Mediterranean has seen a sharp correction, Cal23 held up for most of the year, down -29.85% to $6,138/FEU. The big shift has been towards the buy side in recent weeks. This is as corporates who had previously relied on a ‘wait and see’ approach to physical contracts stand to benefit for forward rates that are back in line (albeit a bit above) 2019 norms. Also in line with this has been a distinct shift back towards index-linking – to the extent that a number of long-term contracts either renegotiate down to lower market levels at the end of 2023 or have a floating component in them already for 2023 and 2024.

Overlaying this contractual shift, is an expansion of triggers for volatility. Since the beginning of Q3, inflation and resulting recession has been destroying cargo demand (reflected now by a sharp drop in port volume) leading to a sharp spike in vessel blankings to stem the bleed of spot rates. And whilst there is talk that for 2022 at least, carrier balance sheets will remain strong, there is fear of a reset in contract prices for 2023 which will crush earnings. Meanwhile, backhauls have also slowly regressed. FBX02 North America West Coast to China/East Asia is down -5% on spot since 31August, lining contracts up for sellers, facing a buy side keen to hedge a persistently volatile freight price.

About Peter Stallion, Head of Air and Containers, Freight Investor Services

Peter Stallion heads up the Air and Container Freight desks at FFA brokerage Freight Investor Services. He started his career in air freight chartering, and has a passion for emerging risk management markets and the logistics industry.



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