Long-term contracted ocean freight rates climbed 7% in March, pushing shipping prices up 96.7% year-on-year, according to the latest Xeneta Shipping Index for the contract market.As Evergreen became the latest name to disclose record annual revenues of $17.67 billion, industry experts are increasingly saying the sustainability of the situation remains to be seen.Xeneta’s latest report, however, paints a stark picture over the last 18 months, with 16 months of rate hikes against only two dips (December 21 and January 22). A combination of relentless demand, port congestion, equipment shortages, and Covid disruption have driven the rates trendline to new heights – facilitating huge profits for carriers and worrying times for shippers.“In March, we have yet again seen another bumper month for the carrier community, with climbs across all major trade corridors, for both export and import indices,” said Xeneta CEO Patrik Berglund. “Long-term rates are reaching all-time highs, and carriers are undoubtedly sitting pretty in contract negotiations, but there are signs that future adjustments may be edging onto the horizon.”Berglund points out that, for example, rates on key Far East-Europe trades are declining, with carriers such as Maersk and MSC announcing plans to void sailings to combat sluggish demand. A potential resurgence of Covid in China, and resultant lockdowns, could add to a sense of increasing volatility and f luctuating demand. In addition, port congestion in the US has transferred from West Coast ports to East Coast ports, as shippers seek to avoid potential problems stemming from labour negotiations between the ILWU and PMA. Congestion in the East could, with this in mind, grow in the second quarter to match that previously experienced in the West.“It’s a very complex picture,” said Berglund. “What’s more, in the slightly longer term, we have also been moved by the emboldened, cash-rich carriers to consolidate market shares and boost f leet capacity. The most recent example of this is Evergreen, again, which could be looking to take delivery of more than 40 new vessels by the end of 2025, totalling more than 550 000 TEUs. Will the market demand continue to develop to absorb this kind of capacity growth, or could we see the carriers go from boom to bust with weaker fundamentals?“As ever, it’s impossible to forecast with any certainty, making it all the more essential for stakeholders to avail themselves of the very latest market intelligence before entering contract negotiations. Knowledge is the key to unlocking value in such a tough, dynamic market.“Pandemic disruption is, to some extent, abating, but demand remains high and capacity maxed out. And, of course, we have the distressing situation unfolding in Ukraine. The wider geopolitical concerns of this are one thing, the immediate impact on energy prices another. Crude oil costs have obviously rocketed and the carrier community will, no doubt, look to pass this on to customers to protect their own bottom lines. So, in addition to the already astronomical freight costs, shippers can expect to see bunker adjustment factors (BAFs) leading to new surcharges, exacerbating their pain.”
