Xeneta: Long-Term Container Rates Collapsed with More Pain Ahead

Contracted long-term ocean freight rates collapse during May marking the ninth consecutive month of declines. The expiration of the 12-month contracts, which traditionally start over each May, contributed in large part to a dramatic decline of 27.5 percent and a further demonstration that the era of high demand, lack of equipment, disrupted supply chains, and congestion is over according to benchmarking and analytics platform Xeneta.

“If industry observers were left wondering just how bad it could get for carriers after the 10 percent fall in long-term rates seen in April, here’s the answer,” comments Patrik Berglund, CEO of Xeneta. “Monthly declines have become the ‘new normal’ at present, but this is a collapse,” he said while noting, “It paints a bleak picture of the state of the industry.”

Xeneta publishes a monthly Shipping Index (XSI), which charts real-time global rates developments. They report that May was the largest-ever monthly fall recorded on the XSI. “The global XSI is now down 42 percent year-on-year,” Berglund highlights, “and with continued macroeconomic uncertainty, evaporating trade volumes, and a wider sense of geopolitical flux, short-term industry omens do not suggest a move ‘back into the black’ at any time soon.”

Berglund says the decline is especially noteworthy as it marks the first-time long-term rates have recorded a year-on-year decrease since late 2020. 

While all the global markets showed weakness, Xeneta highlights that the U.S. import index collapsed by just over 40 percent in May and has now lost 54.6 percent of its value since peaking in October last year. In dollar terms, Xeneta equates this to the average contracted price of shipping containers between the Far East and the U.S. West Coast falling by $6,140 per FEU year-on-year (a 76 percent drop). 

The scale of the decline in the U.S. import index was matched by that in Far East exports, with that segment falling 38.6 percent in May. This segment has now lost more than half its value in 2023, and is 58.5 percent down year-on-year. 

Contacted agreements for Europe failed to escape a “bloody month” for the industry according to Xeneta. The import benchmark moved down 11.1 percent from April (32.6 percent since the start of the year), while its export counterpart fell by 15.9 percent (matching the decline from the previous month).

“This is very worrying for carriers, who are working overtime to manage capacity - adjusting vessel speeds, restructuring services, and blanking sailings - and all to no avail,” said Berglund. “There’s very little the carriers can do to protect their precious long-term rates in this kind of climate, especially when we consider that the vessels ordered during the pandemic ‘boom’ are now starting to swell overall industry capacity.”

With demand for containerized exports out of the Far East falling, and a lack of demand for imports into the U.S., Berglund believes it is a “retreat” in the two forces that traditionally drive global trade growth. He notes that those carriers with the greatest exposure to long-term contracts will feel increasing financial pain but also expects that there are more developments on the horizon in what will be a very challenging year for the carrier community.