[Freightos Weekly Update] Despite uncertainty, GRIs push shippers to finalize contracts

Here are the key insights from this week’s international freight update:

1 Transpacific ocean rates were stable last week (though rates to the West Coast have dipped 10% so far this week) and the recent increase may have contributed to many large importers finalizing their long term ocean contracts.

2 Shippers are reportedly paying contract rates of about $1,200 - $1,500/FEU to the West Coast and $2,200 - $2,500/FEU to the East Coast, reflecting confidence that for the next 12 months the spot market will not return to the extreme lows of earlier in the year, either due to a rebound in demand or to effective capacity management by carriers.

3 But there is still no consensus as to whether or not the market has actually reached its bottom or when a rebound will kick-in, or the extent to which carriers will be able to manage the influx of new capacity set to enter the market later this year.

Ocean rates:

• Asia-US West Coast prices (FBX01 Weekly) dipped 2% to $1,697/FEU. This rate is 89% lower than the same time last year.

• Asia-US East Coast prices (FBX03 Weekly) were level at $2,516/FEU, and are 85% lower than rates for this week last year.

• Asia-N. Europe prices (FBX11 Weekly) decreased 1% to $1,399/FEU, and are 87% lower than rates for this week last year.

Analysis

Though transatlantic ocean rates continued to slide last week, prices on the ex-Asia lanes were overall stable. The success of the recent transpacific GRIs in pushing spot rates up – though daily rates for this week show prices to the West Coast have dipped by 10% – were likely a factor in reports of an increase in the number of long term transpac ocean contracts finalized last week.

These reports have the largest shippers paying contract rates of about $1,200/FEU to the West Coast and $2,200/FEU to the East Coast, with smaller BCOs agreeing to contracts about $200-$300 higher per container. These contract levels reflect confidence that for the next 12 months the spot market will not return to the extreme lows of earlier in the year, either due to a rebound in demand or to effective capacity management by carriers.

Nonetheless, conflicting analyses persist as to whether or not we’ve reached the bottom of the freight recession just yet and when a rebound in demand might kick in.

And conflicting opinions continue to emerge as to whether or not various strategies by carriers to offset new capacity set to enter the market starting this year will succeed, and what effect those steps will have on ocean rates.

In air cargo too, demand levels are leading carriers like UPS to reduce their number of flights, while some (though certainly not all) carriers are still expecting a seasonal increase in demand later in the year.