‘Hard landing’ forecast for container freight rates

Container shipping has been warned to brace for a hard landing rates-wise as multiple indices around the world plunge further.

Utilisation rates are sliding despite an increase in blank sailings. Spot rates, as recorded by the Shanghai Containerized Freight Index (SCFI), are on a “fast-declining trend” according to a new report from Jefferies.

The overall SCFI spot rate index for rates out of China on a variety of trade lanes declined another 9.7% last week.

Seen over the past four weeks the index has dropped 33% making it the second largest four-week drop since the beginning of the SCFI index in 2009, according to analysis from Vespucci Maritime.

We should expect freight rates to drop lower than the longer-term normal

On average the implied freight rate for voyages originating from Shanghai to worldwide destinations has fallen to $2,500 per teu, half of the peak seen in January. The current figure remains comfortably above the long-run pre-2020 average of $1,000 per teu.

Sea-Intelligence warned in its latest weekly report that there is no underlying structural support for the high rates on the transpacific and Asia-Europe tradelanes and that support is on the brink of disappearing on the Atlantic as well.

“[T]he renormalisation the rate levels are currently undergoing will also see a hard landing, in the sense that we should expect freight rates to drop lower than the longer-term normal, followed by a distinct rebound,” Sea-Intelligence forecast.

The ongoing negative sentiment has taken a further toll on charter rates, with the index (see chart below) operated by Clarksons Research falling 26% week-on-week last week to 246 points. However, it remains more than four times the 2019 average.

“Over recent weeks softening had primarily been visible in the feeder sector, but the effect of falling freight rates is now also further eroding hire rates in the larger size ranges,” Clarksons noted in its most recent weekly report.

“The overall sentiment on the demand versus supply is turning negative,” analysts at Braemar said of the containership chartering scene, discussing the “astonishing” rapidity with which the market has turned.

With charter rates plummeting the market has been discussing the chances of renegotiations getting underway, something that happened in a big way in the wake of the global financial crisis 14 years ago. 

A recent issue of Splash Extra focused on this topic with most analysts polled suggesting the difference this time is the cash-rich position liners find themselves in. 

Jan Tiedemann, a shipping analyst at Alphaliner, told Splash Extra: “Most carriers are sitting on a big fat pile of cash. So even when the economy turns sour, they should be able to pay their bills for the next few years.”

According to Drewry analysis, which includes a forecast for 2023, in just three years, the container shipping industry will have made as much money as the entire previous six decades.

The erosion of charter periods and rates recorded in recent months has also seen the sale and purchase market enter a period of hiatus as market players take stock.

On the newbuild front, the first signs of a falling market are surfacing with Splash reporting last week of Seaspan’s decision to cancel four 7,700 teu newbuilds it had contracted K Shipbuilding in South Korea to construct.

Despite the declines seen across multiple container indices in recent months, most analysts are forecasting liner shipping will rake in record profits for the full year thanks to earlier secured long-term rates.

Liner veteran John McCown, who heads up Blue Alpha Capital, predicted earlier this month that liner shipping will make a cumulative net profit of $244.9bn for the full year of 2022, a remarkable 65.2% improvement over 2021’s record results.

Source: Splash247.com

Sam Chambers