Global News Understanding ocean market requires more than broad view

In the current ocean freight market environment, there is a natural inclination to seek data to both understand the market developments in general and — especially for shippers — to ascertain to what degree you are obtaining reasonable terms and conditions.

The problem here is that much of the understanding of the market tends to be based on broad-based average numbers, which can lead to a misunderstanding of actual market conditions.

This can be exemplified by looking at three different parameters: freight rates, capacity offered, and schedule reliability.

In terms of freight rates, the market is often analyzed from the perspective of average rates in a given trade lane. Such data are widely reported from providers such as SCFI, CCFI, NCFI, WCI, FBX, Xeneta, CTS etc. And while each data provider certainly does provide some insight into the general direction the market is moving in, the problem arises when an individual shipper starts to look at their own performance. That the variation can be extreme can be seen from some of the data published by Xeneta and FBX.

Xeneta has shown how over the past two years the spread in rate levels between spot and long-term contract commitments on the Asia-North Europe trade has grown from a few hundred dollars per FEU to almost $10,000/FEU in mid-2021 to now being at a level around $3,500/FEU.

Xeneta has also shown how long-term contract commitments from Asia to the US West Coast (USWC) at the time of TPM22 had an extreme spread from $3,000/FEU to more than $12,000/FEU.

Spot rates also show an extreme spread, with current rate data from FBX showing spot rates on Asia-USWC between $13,000 to $23,000/FEU and Asia-North Europe at $12,000 to $19,000/FEU.

In other words, the spread in prices not only between spot and contract, but also within the spot rates and within the contract rates themselves, is much higher than the market has ever seen before. Of course, the majority of the cargo does not move at the extreme ends of the rate spread, but this is to some degree an indication of core mechanisms in the market.

At the high end of the spectrum, we find shippers for whom getting access to capacity is so valuable that they commit to exceedingly high rates to guarantee capacity for a few boxes. At the low end of the spectrum, we typically find cargo owners who have such large volumes as to be able to command a sizeable volume discount. The competitive advantage for such large shippers is evident in the numbers shown. Capacity, reliability also at play But the freight rate is not the only part of the market with unusually high variability. If we look at the detailed data from Sea-Intelligence Maritime Analysis related to actual market capacity, it becomes clear that the weekly fluctuations in capacity offered on key trades is also extremely high. This is a combination of blank sailings, extra-loaders, vessels delayed by weeks, and the shifting of vessels of varying sizes across trades, all mainly caused by the delays and congestion issues. This leads to a much greater degree of uncertainty related to the tactical supply/demand balance in any given port in any given week. This, in turn, fuels shippers’ fears of being rolled and serves to expand the spot rate spread by pushing the higher end upwards.

Schedule reliability has also become much more volatile. Not only is performance abysmally poor as per Sea-Intelligence’s data — again driven by port congestion — but the difference in performance across individual services is much higher, and much more unpredictable, than in the past.

These are merely three examples of market drivers that are at present subject to a much higher level of variability than we saw in the market before the pandemic.

Ultimately the markets will normalize, and these high differences will narrow — but the timeline for this normalization is likely stretching into 2023. Shippers would therefore need to not only look at the average performance indices in the market — commercial and operational — but also need to look deeper into understanding the high variability if they want to properly understand both the market dynamics as well as their own performance within the market.