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Box rates droop as commodity shippers switch to bulk

[ December 20, 2022   //   ]

Global trade in containerisable goods continued the decline observed at the end of Quarter 2 during the third quarter of 2022, but the drop in overall volumes was much less than that reported by the container shipping sector, said the latest issue of the Container Shipping Market Review published by the Global Shippers Forum (GSF) and consultants MDS Transmodal.

It attributed this to commodities such as coffee, scrap metal and plywood switching away from containers to bulk shipping due to relatively high box freight rates.

But despite falling for a second quarter, carriers’ earnings per container moved were still 2.8 times higher than pre-Covid rates whereas unit operating costs have only risen by a factor of 1.5 over the same period, said the authors. High charter rates and the rise in fuel costs have receded and container shipping lines remain highly profitable despite a falling market, they argue.

Spot rates fell by a fifth during the period, leaving many shippers ‘burnt’ by their decisions to commit to long-term contacts earlier in the year and questioning the many sources in the industry who confidently predicted that disruptive congestion and capacity shortages would continue through 2022 and beyond.

Adding to shippers’ frustrations, service levels remained at historic lows, with the predictability of arrivals still at only 85% – or 1 in 6 sailings arriving later than y expected.

It adds that the modest improvements recorded in the number of scheduled port calls made, at 90%, is a welcome positive that can be partly attributed to the rising number of sailings that were ‘blanked’ during the period and didn’t sail at all, so easing the pressure on intermediate ports. Many of these saw an improvement in the proportion of expected capacity actually calling at the port s monitored but the proportion of lost capacity is still at historically high levels.

Chair of MDS Transmodal Mike Garratt, said: “In quarter 3 2022 we saw the mean rates charged by the major lines continuing to suppress the proportion of container traffic they carried while the role played by new entrants was small. During quarter 3 we have seen several of these recent entrants leave the market as spot rates have fallen sharply, while leaving mean rates paid much higher. With a combination of stagnant demand and few ships now being delayed by port congestion, one would expect competition for shippers’ business to lead to a recovery of the share of the overall cargo market carried by container.”

GSF director, James Hookham, added: “The quarter saw the downturn in volumes recorded at the end of Quarter 2 turn into a sustained decline – conditions that have not been seen in the container shipping market for over ten years. Many shippers are experiencing the behaviour of the market under such conditions for the first time.

“Blanked sailings, slow steaming and other capacity management measures will add to the catalogue of frustrations accumulated over the previous 30 months of record high rates and poor levels of service”.

“The widening gap between spot rates and contact prices agreed six months prior to these data will anger shippers further and demands a flexible and immediate response by carriers if their dream of securing a majority of their business on contract ted terms is to be achieved.

“The big question going into 2023 will be how much of their diminished volumes will shippers commit to renegotiated contracts and how much will they reserve for the spot market, which is expected to fall to below pre-Covid levels in the next few weeks?”

“Countering this trend will be efforts to manage capacity through ‘blanked sailings’ However, the extent to which spot rates are being supported by this permitted co-ordination between consortia partners is playing out just as competition authorities in Europe and North America are evaluating existing anti-trust measures and considering possible options for the future.”

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