Spot rates near pre-COVID levels
There is an ongoing big unwind in shipping, so much so that spot rates are getting near to what they were before Covid-19 struck. Already the West Coast has returned to its pre-pandemic norms, and the East Coast is going the same way. When 2022 was beginning, everyone wondered whether the upward trend in spot rates would continue or if it would start unwinding. The trends seem to answer that question towards the unwinding side of things.
An end of the year that is cooling down the price temperatures
Experts predict the price rises are now coming to a close as we leave 2022 behind. The market gains made during the era of Covid-19 are gradually being lost. Indeed, any remaining price uplifts are likely to dwindle away in 2023. For those operating on the Asia-West Coast, it is back to normal. For example, the Freightos Baltic Daily Index (FBX) indicated that the China-West Coast rates were $1,378 per 40-foot equivalent unit on Monday.
Meanwhile, the index has remained unchanged since November 23rd, 2022. Indeed, its current rates are down 93% compared to the all-time high achieved in September 2021. Statistics indicate that the index has made a complete round trip, which started with Covid-19. The pandemic heralded a consumer boom which greatly benefitted the shipping and logistics industries. The current levels are commensurate with what they were when 2019 began, when the world had not yet been introduced to the coronavirus-induced pandemic.
Tracking container shipping spot rates across the globe
According to the weekly Drewry World Container Index (WCI), The spot rates per FEU for the Shanghai-Los Angeles route stood at $1,992. That index has remained relatively flat since the 8th of December 2022. Indeed, the current rates represent a fall of 84% compared to the historical highs achieved in November of 2021. Nevertheless, it is notable that the current rate is about $557 per FEU higher than it was at the end of December 2019.
The weekly Drewry World Container Index (WCI) gave its estimates of the Shanghai-Los Angeles spot rates. These were recorded at $1,992 per FEU on Thursday. This route has been roughly flat since December 8th, 2022. The new rates represent a fall of 84% from their peak in November 2021, although still $557 per FEU above where it was in late December 2019. Platts is a division of S&P Global Commodities, which has been assessing spot rates. For example, it showed that the spot rates for the North Asia-West Coast route were at $1,300 per FEU on Monday, $50 below their assessment of the same route in December 2019. According to them, the US West Coast market may have reached its bottom.
Getting back to the old normal
When looking at the spot rates on the Asia-East Coast routes, one cannot help but notice that they have made a complete circle back to where they stood before the Covid-19 rises. Nevertheless, it is notable that the Asia-East Coast spot rates were holding up much better than their counterparts in the West Coast segment. The reason for the robustness of the Asia-East Coast spot rates was due to the enduring demand, which arose when shippers wanted to avert their cargo from the West Coast. At the time, the West Coast was dealing with labor uncertainty. The upshot was that congestion on the East Coast increased, and the spot rates rose or did not fall as much as on the West Coast.
In any case, the congestion on the East Coast is clearing, which means falling spot rates. For instance, by Monday, only 10 ships were waiting in the queue off Savannah, Georgia. This was over 40 ships down from the height of the congestion when nearly 50 ships were kept waiting. FBX reported China-East Coast spot rates at $2,905 per FEU this week. This is a fall of 87% compared to the peaks that the same route achieved in September 2021. Nevertheless, this reduced rate is $295 per FEU higher than in the pre-Covid era. That represents an advantage of 11%.
Finding stability in the spot rates once more
The FBX East Coast index has slid by 16% since the beginning of December 2022. That is a different situation from FBX’s West Coast, which has plateaued. On Thursday, the Drewry WCI Shanghai-New York index was at $3,889. This represented a drop of 76% compared to the high point in September 2021. WCI indicates that spot rates for this route are still $1,391 per FEU, more than they were at a comparable time in 2019. This represents a rise of 56%. The normalization of the East Coast-West prices means that logistics companies must recalibrate their strategies accordingly.
The period from 2020 to 2022 saw what many experts perceived as a container shipping boom. This was when the Asia-East Coast rates reached a remarkably high premium compared to the Asia-West Coast rates. Before the pandemic hit, the premium ranged between $1,400 and $1,500 per FEU. The boom led to rates as high as $6,000 per FEU, an exceptionally elevated spread. Indeed, the spread persisted throughout 2022 because volumes were shifting to the East Coast. Reports indicate that as recently as September 2022, the spot rates exceeded $4,500 per FEU based on data from FBX.
Is this a new era for the shipping industry?
Last week marked a significant shift in trends. The high rates reported by FBX on the Asia-East Coast had fallen by $1,527 per FEU. Although the drop was significant, the rates were returning to their traditional level before the upheavals inspired by the Covid-19 pandemic. Other observers are confirming these trends, such as Platts. Their indices show that the spread between the East and West Coast import rates stands at $1,525 per FEU. Once again, this is near the pre-pandemic averages.
Interestingly, other parts of the container shipping market are still quite different from the normal we knew before the pandemic. For example, the Trans-Atlantic rates are nearly three times what they were in the pre-Covid19 era. The westbound trans-Atlantic market is far from its old normal. On Monday, FBX reported that the Europe-East Coast rates were $5,693 per FEU. This is about 2.9 times what they were in a comparable period during 2019. Similarly, the Drewry WCI Rotterdam-New York assessment was $6,989 per FEU. This is also nearly three times what it was three years ago.
Looking for the bright spots in the industry
Sea Intelligence argues that these high points remain a source of hope for an industry that does not really want prices to fall. However, the same report suggests that the bright spots are also about to disappear in 2023. Alan Murphy, Sea Intelligence CEO, sees an injection of capacity on this trade lane, eventually depressing the spot rates. In the middle of December 2022, the operating capacity on the North Europe-North America East Coast rose to more than 20% of what it was in 2019. This markedly changed from the preceding period when capacity had remained stable.
Some experts predict that by the middle of January, capacity will have risen to 30% higher than pre-Covid levels. For example, capacity from the Mediterranean is expected to grow at an average of 25% compared to 2019 during the critical period of January and February this year. Meanwhile, contract rates are poised to reset at a much lower level in 2023. This is significant because most carriers rely significantly on contracts as opposed to spot rates which are a boom.
The Covid-19 era led to rapid rises in spot rates. This was inspired by a boom in demand. However, over the last few months, these trends have been reversed. Apart from a few exceptions, most routes offer spot rates near their pre-Covid19 levels. The shipping and logistics industries may have to re-strategize, considering the latest trends.