Conflict in the Red Sea causes instability in freight rates in the market: Xeneta

According to new data on the Xeneta Shipping Index, ocean container shipping lines are having to weigh the risks and benefits in negotiating new contracts as the market remains affected by uncertainty at Red Sea.

The latest data published by Xeneta shows that Global XSI (the average freight rate of all valid long-term contracts on the market) remained fairly stable in April at 154.3 points, an increase of only 1.7 % compared to March.

However, a look at the sub-indices within this global figure shows a dynamic market, with the XSI for European Imports reaching 171.8 points, up 9.2% from March and an increase Biggest monthly since June 2022.

However, the XSI sub-index for US Imports fell 9.4% in April to 150.6 points. And while April's Global XSI figure represents a slight increase from the previous month, it is still down 50.1% from April 2023.

“We have seen a big increase on the XSI® for European Imports in April, mainly due to the ongoing impact of conflict in the Red Sea,” said Emily Stausbøll, Senior Shipping Analyst at Xeneta.

“However, given the spot market on trades such as Far East to Mediterranean is still up by more than 60% compared to 12 months ago, you would expect carriers to be pushing for even higher long-term rates. "

“The reason carriers aren’t demanding higher long-term rates is because they are scared of overcapacity in an uncertain market.”

The possibility of higher long-term rates is bolstered by a 10.7% increase in global container volumes in January and February compared with the first two months of 2023.

Even the XSI European Imports sub-index, which recorded strong monthly growth in April, fell 34.2% from a year ago.

Stausbøll added: “There has been record high deliveries of new container ships in every quarter since Q2 2023, but conflict in the Red Sea has largely protected carriers from overcapacity so far in 2024 because diversions around the Cape of Good Hope require more ships to maintain service schedules."

“If the situation changes and we see a large-scale return of container ships to the Red Sea in the next 12 months, it will leave carriers severely exposed to the impact of overcapacity and spot market rates are likely to plummet."

“Yes, carriers want higher long-term rates, but they also need to secure long-term volumes. That is the fine line they are trying to walk, balancing risk and reward in such an unpredictable market".

“Carriers and shippers must wish they had a crystal ball to know how the next 12 months will play out, but they don’t, and this uncertainty illustrates how every single negotiation is unique.”

The XSI sub-index for US Imports of 150.6 points not only represents a 9.4% decrease from the previous month but also a 67% decrease from last April when it stood at 451.5 point. This is also the lowest level the index has reached since April 2021.

With many US shippers' long-term contracts extending from April to May, next month's XSI figures will reveal how recent negotiations have gone.

Stausbøll believes that market data and exploration information are at the heart of these discussions.

“Spot rates from the Far East to the US East Coast have steadily fallen by 33% from their peak at the start of February following the escalation of conflict in the Red Sea in December. Spot rates from the Far East into the US West Coast have fallen by 31% in the same period,” she said.

“US shippers have used Xeneta data during long-term contract negotiations to highlight this softening spot market and secured substantial big discounts between tender rounds. These new long-term contracts will come into validity in May so we can expect to see further movement on the XSI® in the next month.”

Source: Phaata.com (According to Xeneta | ContainerNews) 

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