As a result of shutdowns in China on the back of Covid-19 containment procedures, the container market, particularly on Asia-US routes, has come off sharply.

Forward market sentiment, rather than carrying down any further significant price decreases, has flattened out the curve, even moving FBX01 into contango as the market starts to price in the impacts of a demand bullwhip once held-up container exports are released into the market.

Transpacific westbound has seen a severe erosion on freight rates, with FBX01 China/East Asia to North America West Coast spot prices down -34.16% to $10,762/FEU in May. FBX03 China/East Asia to North America East Coast has fell, maintaining an East/West premium on the spread of about $2,500-$3,000/FEU, and dropping down -26.27% on the same time period to $13,796/FEU. Forward market sentiment, rather than carrying down any further significant price decreases, has flattened out the curve, even moving FBX01 into contango as the market starts to price in the impacts of a demand bullwhip once held-up container exports are released into the market. FBX01 2023 selling has sat at about $11,500/FEU and held steady through the month. Alongside this, FBX03 2023 has sat at about $12,500 to $13,000/FEU whilst near-dated contract value has progressively pulled back in line with spot price decreases. This is a drastic change since the start of the year (and indeed throughout most of 2021) whereby the market prices were a premium for fixing prices forward. This will no doubt be temporary given the highly unpredictable nature of ocean freight pricing and the unknown impacts of inflation and economic recession that could be seen as bearish.

FBX11 has traded several times again on the Cal23 at 7,800, pulling back $100 from $7,900 with the erosion on the value of the Cal23 paling in comparison to spot price decreases over the past three months.

Asia to Europe and the Mediterrenean conversely has seen its bearish run on spot prices run out of steam. FBX11 China/East Asia to North Europe sat flat throughout May, even ticking up very slightly, with 3rd-30th May spot rates increasing +0.13% to $10,579/FEU. FBX11 has traded several times again on the Cal23 at 7,800, pulling back $100 from $7,900 with the erosion on the value of the Cal23 paling in comparison to spot price decreases over the past three months.

Considering the flip over to bullish sentiment on the back of better Covid-19 news out of China, this offers up a rare opportunity for hedgers to buy in to any near-term price increases and secure stable freight rates against a backdrop of constant volatility.

FBX13 China/East Asia to the Mediterranean has seen similar price action on spot, up +1.94% through May and supporting higher offering on the Cal23, with its value increasing +$1,000 from $9,000/FEU to $10,000/FEU. FBX13 is typically correlated with FBX11, as it is the only front haul route that still prices in a substantial discount from today’s spot price for longer-dated contracts. Considering the flip over to bullish sentiment on the back of better Covid-19 news out of China, this offers up a rare opportunity for hedgers to buy in to any near-term price increases and secure stable freight rates against a backdrop of constant volatility.

Meanwhile, feedstocks for container freight remain exceptionally bullish, with Brent crude surging above $120/Barrel on 31st May as Europe shuns seaborne Russian oil, inflating the basis for bunker adjustment factor on the vast majority of fronthaul routes. The impact that fuel has had on freight rates (included in the FBX assessment) has also progressively increased as rates come off, with the cost of fuel factoring about 12-14% of the rate on the Asia-Europe tradelane. Whilst Russian oil has been finding its way into the Chinese and Indian markets, the benchmarks for bunkering remain extremely high and volatile week on week.

 

About Peter Stallion, Head of Air and Containers, Freight Investor Services

Peter Stallion heads up the Air and Container Freight desks at FFA brokerage Freight Investor Services. He started his career in air freight chartering, and has a passion for emerging risk management markets and the logistics industry.



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