After the record-breaking falls of January, global long-term ocean freight rates held up surprisingly well in February, boosted by “a special month” for US exports. According to the latest data from the Xeneta Shipping Index (XSI®), average long-term contracted rates dropped by just 1% across the month, following on from a 13.3% month-on-month collapse in January. Despite the relatively strong performance, seen against a backdrop of weak fundamentals, Xeneta notes that this is the now the sixth consecutive month of falls, with the index losing 22% of its value since August 2022.

All eyes on TPM

“Given the lack of demand, challenging macro-economic conditions, deflated spot rates, and rampant industry overcapacity, observers may have expected a continuation of the steep downward trend for long-term contracts,” comments Xeneta CEO Patrik Berglund. “However, a powerhouse performance for the US export benchmark, with a 16.5% appreciation, arrested the decline, pushing that particular corridor to an all-time high.”

He continues: “That said, one stand-out performer should not cloud the big market picture. If we look across the rest of the trade lanes the development remains clear for all to see. The drops may not be as dramatic as we saw last month, but there’s still some sizable declines on the world’s leading corridors. So, it remains a very challenging situation for carriers fighting to secure cargoes, and that should continue to impact upon rates going forwards. It’ll be interesting to see what happens at TPM this week, which will operate as a focal point for new contract negotiations.”

Falling stars

The XSI®’s regional data gives credence to Berglund’s analysis. Aside from the US export rates growth, the majority of arrows point resolutely downwards. The US import sub-index fell by 3.9%, but is still 79.86% up against this time last year. Two of the routes that make up this XSI® defied the overall trend, with the South American East Coast – US East Coast and the Southern part of Africa – US East Coast showing their first growth since November 2022 (by 13% and 8% respectively).

The Far East saw both benchmarks drop, with import rates declining 4.4% (up 13% year-on-year) and the all-important export XSI® dropping by 4.6%. Although this latter figure has fallen consistently over recent months it remains a “mighty” 244.5% up compared to the per-pandemic days of January 2020.

Continental shifts

In Europe there was a break in the economic clouds for the import XSI®, which moved up 3.5% on the back of strong import rates in to the Mediterranean Sea from the US East and West Coasts (with the average of all valid long term rates rising by 86% and 49% respectively). The benchmark is now 31.6% up year-on-year. Exports moved in the opposite direction, with this XSI® dropping by 2.6% (up 65.3% from February 2022). Xeneta’s data showed steady declines across the board, with exports out of the Mediterranean Sea to Korea and Japan falling the most.

Although there’s little for the carriers to cheer in the latest figures, Berglund notes that a sense of perspective is important when assessing current market falls.

Long-term strength

“Six months of declining rates is, naturally, of great concern to the carrier community, as is the fact that fundamentals remain challenging for the immediate future,” he states. “But it’s not as if the shippers are suddenly seeing ‘bargain’ prices for their cargoes. Yes, they have the upper hand in negotiations, especially with the fact that spot rates are so depressed, but relatively speaking long-term contracts remain historically high.

“Even with the current downward trajectory, the global XSI® remains 43.0% up year-on-year. And when we go back to January 2020 rates have climbed by 207.7%. So, even if the future is uncertain for carriers, at least the rates are falling from a position of real strength. Time, and the data, will tell how long they can stay that way.”