Global News Data shows container shipping market could be at its bottom

Looking at freight rate developments over the past couple of months, the data supports that we might have reached the bottom of the market. Of course, there are no guarantees that carriers will not suddenly lapse into a more destructive price war, but the present data does not support that this is currently happening.

There are different ways to analyze the data, and it should also be kept in mind that different rate indices reflect different aspects of the market. It should, of course, also be noted that some trade lanes deviate more or less from an overall market trend. We’ll look here at two different ways to consider the data.

The China Containerized Freight Index (CCFI) is useful when looking at long-term trend developments. It is the only index with a consistent, long time series ranging all the way back to 1998. It is a blend of spot and contract and is measured purely as an index and not in US dollars. It furthermore has the advantage that it is quite well correlated with the global average freight rates realized by the carriers. This is despite the fact that CCFI purely measures Chinese export cargo. The reason is, of course, that over time all trade lanes are interconnected and any trade with a profitability deviating sharply from the global average will tend to see additional capacity injected or removed. This eliminates arbitrage opportunities, but it is a process that takes some time.

As the market was reaching a crescendo in early 2022, I presented an outlook at the Journal of Commerce's TPM22 conference in Long Beach pointing out that when the market normalized, we should expect a reversal to the long-term trend from before the pandemic. The CCFI index showed a gradual slow decline in the period from 1998-2014. This was abruptly lowered as a result of the great price war of 2015-16, but the consolidation in the industry meant that by the end of 2019 the rate levels were gradually reversing to the long-term trend. At that TPM22 conference, it was also predicted that the return back to normality would likely undershoot in the sense that rates would drop too far and then rebound back up.

Fast forward to the end of April 2023. The overall CCFI index was back to the long-term trend in the first week of March 2023 and bottomed out in mid-April with, potentially, a slight increase in the last week of April.

If this analysis is narrowed specifically to the Pacific trade from China to the US West Coast, the long-term trend line was reached in the first week of January 2023 and the bottom was reached in the third week of March, having stayed more or less stable at that level since.

But then it should be noted that the CCFI includes contracts, and this index tends to lag the changes seen in the more volatile spot rates.

If we stay with the China to US West Coast market, the Drewry WCI spot index has seen a rate decline from January to April which is mainly in line with what one could expect from the seasonal impact from Chinese New Year. The increase seen in recent weeks also matches the Chinese New Year seasonality as there is typically a pre-peak season bump at exactly the timing and magnitude that we are currently seeing. We should therefore expect this bump to also be reflected in the CCFI in the coming weeks, and as a consequence, lend further support to the notion that we are past the bottom of the market.

Wild card factors could disrupt Of course, there are many nuances and moving parts in the market. As an example, the rate levels on the Atlantic westbound trade remains highly elevated compared with pre-pandemic levels. But as mentioned, these individual trades that deviate from the global trend tend to be brought back in line over time, owing to repositioning of capacity.

Fundamentally, the data presently supports the notion that the market has, overall, reached the low point and is about to rebound slightly to be brought back in line with the long-term trend.

There are two intertwined elements which could still lead to a drop. One would be a price war among the carriers, but the present developments do not support this notion. If this was the case, rates would have dropped faster than would seasonally be expected after Chinese New Year.

The other element would be a severe undermining of the supply/demand balance. This is, to some degree, already the case, owing to the large inventory correction in combination with continued deliveries of new capacity. The litmus test for the market will come over the next two to three months when we will see whether there will be a peak season 2023 or not.