Caution with shipping line contract rate negotiations: International freight insights APAC 2024 week 36

Take extra caution when entering longer term contract freight rate negotiations. Despite ocean spot market freight increases to here in Australia, globally they are falling and will be into next year. A 4% increase in ocean freight rates Asia to Australia was recorded in the past week (rates are up 14% in the past month). Contrast this to ocean freight rates from Asia to all global routes which decreased 2% in the past week (rates are down 8% in the past month).

Reasons for taking extra caution can be seen via the Shanghai futures (Containerized Freight Index Futures - CFIF) market showing ocean freight declines. Per consultancy Linerlytica global rates out of Asia may fall by up to 70% by mid next year “Although the drop is not as severe as the freight rate collapse seen at the end of 2022, current freight futures prices anticipate continuous declines over the coming 12 months, with no rebound expected at the end of this year and no repeat of this year’s post Chinese New Year rate rally in 2025,”

However, Xeneta’s chief analyst Peter Sand believes that a prerequisite for a 70% fall in contract rates will be a resolution to the Red Sea crisis and a return of vessels trading via the Suez Canal “It is probable that rates will find a different level. But the Red Sea is the one thing that is different from a year ago when rates were coming down and lines were reporting losses.”

Spot ocean freight rates to Australia over a longer 3-month chart period, show rates have increased more for all trade lanes (+32%) than they have to Australia (+25%). In the past few weeks this trend is reversing with Australia trade lane rising as most others fall.

Trend data suggests this divergence for another week or two between Asia to Australia freight rates compared with Asia to the rest of the world; i.e. rates to Australia continuing to increase or flat while global rates fall. The index (see the chart) now shows that rates to South East Asia have fallen below Australia rates, as they historically are. This along with the past 3-month time period gap in rate increases narrowing between Australia and all trade lanes, suggest rates to Australia will steady within the next few weeks. There is still more upside risk to rates in the next few weeks. My anecdotal information as at early this week from certain shipping lines is that China -> Australia route rates are starting to flatten out.

Global airfreight rates have been unusually steady the past few months. Although rates increased 3% in the past week. As it’s now peak season and there’s air cargo capacity shortages (read below) there is reasonable risk of continued rate increases in the coming weeks.

Inventories surging above trend

A global trend this year of a front-loading of imports has seen a spike in global ocean freight volumes. Per Sea- Intelligence “retailers have been steadily increasing their inventories, suggesting that the growth in container imports was primarily used to build up inventories rather than reflecting a surge in consumer spending.” Fears of supply chain disruptions and spiking rates have contributed to this. This fear stems from “the last five years being particularly volatile” per Drewry Shipping Consultants. Middle East shipping re-routing and recent experiences from COVID and other uncertainties seem to be drivers of this fear.

Air cargo market could overheat

Shippers have been urged to secure space and make contingency plans as the air cargo market is “facing capacity shortages out of key Asian markets during the peak season”, according to Xeneta. The capacity situation is expected to get tighter during the peak due to the usual rise in general air cargo volumes, the ongoing surge in e-commerce and the continuing disruption to ocean shipping.

China's 'deflation exports' expand as cheap goods flood markets

Per Nikkei Asia “China is stepping up overseas shipments of cheap products, as more countries accuse it of exporting its deflation.” Export prices for 60% of major products have fallen, with price declines expanding across further categories. Due to a sluggish economy at home, Chinese companies are redirecting excess inventories abroad, and other countries are taking greater measures to protect their industries.” Products that cannot be sold domestically are pushed overseas. As examples, the unit cost of home appliance exports is down 5% with the unit price of shoes down 11%.

Access ZG (access-zg.com) is an Australian company that provides fourth party logistics (4PL) services to international logistics & trade participants, specialising in connecting with Asian markets. Access ZG’s 10 value- ads assist with alleviating issues & navigating this new paradigm of heightened freight & supply chain risks for the international logistics industry.

Please see website and / or read below the email signature for further information & reach out for assistance in this challenging environment.

Thanks for taking the time to read and hope you gained some valuable insights,

Jeffrey Levy CA 

Founder

ACCESS ZG 

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