Spot Rates in Decline
In a recent turn of events, spot ocean container rates have continued their descent, undermining the brief surge experienced earlier this month. Drewry’s container price tracker indicates a 6% drop this week, positioning the average cost at $1,384 for a 40-foot container. This figure not only falls 3% below the pre-pandemic rates of 2019 but also marks a significant 42% decrease from the same timeframe last year.
Shanghai to U.S. Rates Tumble
Trade routes from Shanghai to major U.S. cities have not been spared from the downturn. The Shanghai to Los Angeles route has witnessed a 9% decline, translating to a $208 reduction per container, now costing shippers $2,000. Meanwhile, containers on the Shanghai to New York route are experiencing a more modest 2% drop, bringing the rate to $2,573.
Future Contracts Hang in the Balance
The shipping industry, along with shippers themselves, are keeping a vigilant eye on spot rates as the year progresses. Should the rates fail to recover, it could lead to a significant drop in contract rates for 2024, affecting long-term shipping agreements and the overall stability of the industry.
Major Carriers Report Steep Losses
The financial health of leading ocean carriers such as Maersk and Hapag-Lloyd has been notably impacted. Maersk, ranking as the second-largest carrier, has reported a staggering decline in revenue, down by over $10 billion from the previous year, totaling $12.1 billion for the quarter. Hapag-Lloyd, not faring much better, has seen a 73% income drop from the second quarter and a 94% decrease from last year. The CEO of Hapag-Lloyd, Rolf Habben Jansen, described current rates on key routes like Asia-Europe and trans-Atlantic as loss-inducing.
Negotiations Under Pressure
With the impending 2024 contract negotiations on the horizon, both Maersk and Hapag-Lloyd face the challenge of securing agreements against the backdrop of these low spot rates. Maersk CEO Vincent Clerc has emphasized the critical nature of this quarter’s performance, which will heavily influence the landscape of 2024, going as far as to label the situation as “dire” without an upward trend.
Contract Rates Versus Spot Rates
Despite the pressure to secure contracts, Hapag-Lloyd’s Jansen has expressed a staunch stance against signing contracts at rates that would guarantee losses. He suggests that the company would rather reduce costs and capacity than agree to unprofitable terms, indicating a potential for contract rates at the start of the year to remain above the current spot levels.
In conclusion, the shipping industry is at a critical juncture as it faces the ripple effects of declining spot rates, which could lead to a reshaping of contract terms in the coming year. With major carriers already feeling the squeeze, the next few months will be pivotal in determining the financial tides for 2024.