Truck shipping

FBX index: slight shift towards market weakness

Jhe global supply chain continues to be plagued by severe congestion, which in turn has ramifications on the strength of supply and demand for the ocean leg of container shipping.

The most recent May data from Sea-Intelligence shows no noticeable improvement in global reliability, as ship punctuality is still lower than in the same period last year. It also means that reliability remains below 40% for the 14th month in a row. There has been a slight improvement in the duration of ship delays. However, this has only brought the delays back to the same level as last year – which is still over six days.

In total, this means that 10% of global vessel capacity remains effectively unavailable on the market. This is an improvement from nearly 14% in January 2022, but it’s actually worse than the same month last year.

In total, this means that 10% of global vessel capacity remains effectively unavailable on the market. This is an improvement from nearly 14% in January 2022, but it’s actually worse than the same month last year.

The spring period is the seasonal low point for container demand. For example, only 22% of annual Asia-Europe volumes are loaded in the 1st quarter of the year, and for Asia-North America trade it is 20% based on pre-Covid seasonality. Yet despite the seasonal decline in volumes, operational improvements in the supply chain have only reduced the problems to the same level seen immediately before the 2021 peak season.

This means that even a modest peak season has the potential to significantly worsen congestion, which in turn will suppress capacity and cause freight rates to skyrocket.

But the counterpoint to this development is what we have seen in recent spot rate developments.

The reopening of Shanghai was expected to lead to a surge in demand. Unfortunately, demand data tends to be lagged in time, but the movement of the spot rate gives a more up-to-date view of developments. Until mid-June, the decline in spot rates on the Asia-Northern Europe trade could be shown to follow normal seasonality.

The reopening of Shanghai was expected to lead to a surge in demand. Unfortunately, demand data tends to be lagged in time, but the movement of the spot rate gives a more up-to-date view of developments. Until mid-June, the decline in spot rates on the Asia-Northern Europe trade could be shown to follow normal seasonality. In other words, the market was not fundamentally weak. On the Transpacific, fares to USEC fell, but this was more likely due to the effects of shifting freight between the east and west coasts due to fears of port congestion effects. The slope of the decline itself followed normal seasonality. Fares from the Pacific to the West Coast declined to a low point consistent with seasonality, but did not show the usual temporary pre-peak fare increase.

All of this indicated a market in normal equilibrium. However, the last weeks of June saw spot rate levels deteriorate further – and this at a time when seasonal behavior would normally cause them to rise. This is a sign of market weakness.

In addition, weekly data from Flexport shows that although the time for transporting goods from Asia to Europe and North America is improving, the supply chain is still suffering from delays of around six to seven weeks compared to pre-pandemic normality. This implies that shippers practicing good planning should also have started peak season six to seven weeks earlier than usual – in which case the peak is already slowly underway. This in turn means that we should already see spot rates rising, which they are not. Again, a sign of market weakness.

It is still too early to assess the entire upcoming peak season as weak. Even if demand is low, the risk remains that bottleneck issues further reduce available capacity.

It is still too early to assess the entire upcoming peak season as weak. Even if demand is low, the risk remains that bottleneck issues further reduce available capacity. Key examples of such risks have been clearly seen in recent weeks, such as port strikes in Germany, rail strikes in the UK and truck strikes in South Korea.

In conclusion, shippers who are currently facing a situation where spot rates are falling below contracted rates would do well not to break or renegotiate those contracts just yet – additional capacity constraints could still lead to spot increases in the coming months.
Source: Baltic Exchange, Lars Jensen, CEO, Vespucci Maritime, https://www.balticexchange.com/en/news-and-events/news/guest-column/2022/Slight-shift-towards-market-weakness2.html