• 2021 December 1

    Container freight rates: taking a downward slide?

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    In November, container freight rates demonstrated a decrease after an impressive growth throughout the entire year of 2021. Experts are concerned about possible ‘overproduction crisis’ and excess of facilities within a couple of years following the investment of surplus profit in new containers and container ships.

    The global index of container freight rates based on average market rates for 40 Ft containers set by the global carriers, forwarders and shippers has been decreasing for the recent two months after a record high level of $10,323 reached in September 2021. In October it decreased by 1.3%, in November – by 8.2% to $9,353.

    However, the decrease of China Containerized Freight Index (CCFI) has not been crucial, less than one percent.

    On the other hand, long-term contracted ocean freight rates rocketed by a further 16.3% over the course of November, says Xeneta. According to Patrik Berglund, CEO Xeneta, “it’s difficult to rule out further rates gains in the coming months. How big they will be is up for debate”.

    Obviously, in the near time freight rates will be influenced by two key factors: pre-Christmas season traditionally marked by the growth of consumption and, consequently by increased shipping volumes, and by the expansion of the Omicron coronavirus variant. The latter has already affected considerably the stock market. If the new Covid variant causes introduction of tough lockdowns, let’s say in China, and crew rotation constraints, that will lead to suspension of production, disruption of logistic chains and, consequently, reduction of global shipping volumes. Therefore, on a mid-term horizon the container market will be able to demonstrate an explosive growth again due to the demand/supply put-up for a post-lockdown period. Reportedly, China has already imposing constraints on cargo flows due to expansion of the new coronavirus variant.

    As for a longer term, experts are concerned about a possible excess of carrying capacity caused by investment of container carriers’ surplus profit in new containers and container ships.  In the second quarter of 2021, main container shipping companies had an average operating profit margin of over 44 percent, up from some 8.5 percent a year earlier.

    “While manufacturers and consumers bear the increasing costs of shipping, container carriers are reporting increasing profits. In the second quarter of 2021, main container shipping companies had an average operating profit margin of over 44 percent, up from some 8.5 percent a year earlier. Some carriers are using these profits to increase their carrying capacity by buying new containers and ordering new container ships. Since building a container ship takes around 18 months, delivering these newly ordered ships will take several years. However, there is no guarantee the current situation will last that long. If container shipping becomes more resilient in the following months, allocation of shipping capacity may improve, and once the ordered ships are delivered, carriers may end up with capacity exceeding the demand”, comments Statista analyst Martin Placek.

    Since the new container ships will enter the market around the same time, that may result in a steep fall of freight rates due to supply exceeding the demand.

    Similar forecast was made by Russian container market players. When speaking at the #Containers conference in Saint-Petersburg, Aleksey Kravchenko, FESCO Director, Sales and Business Development, said the decrease of freight rates can be expected from the middle of 2022 but they will still remain higher than those of pre-crisis period. The coming two months are likely to see the continued growth of the rates, he believes. According to the expert, the year of 2022 can see the excess of fitting flat cars, containers and fleet capacity which is to affect the rates of container cargo transportation.

    “Container companies seeing surplus of financial results invest in transport assets... We see a risk of excessive transport assets, flat cars, containers, ships that can appear in the mid-term already”, said Aleksey Kravchenko.

    He forecasts container exports to grow faster than imports thus leading to an imbalance. FESCO expects container transportation to make 14% in 2021 and 9% in 2022.

    Ivan Atemasov, General Director of Eurosib SPb-TS, said in his turn that the surge of container shipping was driven by higher focus of consumers on physical products due to less travelling and vising of various events amid the pandemic.

    “Next year we expect the growth (of container cargo transportation - Ed.) of about 10%. Nevertheless, we believe that the product quality, timely shipments, compliance with delivery terms and price will be the factors of influence starting from the next year”, said Ivan Atemasov.

    Nevertheless, there is no stable trend towards a considerable decrease of container freight rates so far. In the short term, they will be supported by pre-Christmas sales although a new round of market volatility is possible in case of implementation of the worst-case scenario with expansion of the new virus variant and introduction of strict lockdowns. If plans and ports are closed that will entail a shortfall of cargo but then followed by an explosive effect of deferred demand.  In that context, it is crucial for Russia to develop transit infrastructure, especially in the Far East direction.

    By Vitaly Chernov


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