Linerlytica predicts 70% drop in ocean freight rates in next 12 months

Source: Seth Wenig/AP

Linerlytica predicts a 70% drop in ocean freight rates next year, but Xeneta says such a drop would require the Red Sea crisis to be resolved and ships to return to operating via the Suez Canal.

Consulting firm Linerlytica said yesterday that it expects a 70% drop in ocean freight rates over the next 12 months, as shipping lines have failed to stem the downward trend since July, according to the Shanghai Container Freight Index (SCFI).

Container lines have struggled to stem the decline after the July peak, following what appeared to be an early peak season, as demand eased and 36 new containerships, with a capacity of nearly 205,000 TEU, were delivered over the past month.

“Freight futures continue to weaken, with North Europe rates trading at a discount of over 70% to current spot rates,” Linerlytica forecasts.

Long-term contract rates could have the biggest impact on the global container shipping market.

“Container freight rates are poised to fall by over 70% by June next year, based on the latest CoFIF EC contracts traded on the Shanghai International Energy Exchange (INE). Although the drop is not as severe as the freight rate collapse seen at the end of 2022, the 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,” Linerlytica reported.

According to the consultancy, carriers have been unable to maintain spot rates, with SCFIS dropping 12% on trades to Northern Europe since July, which had seen steady weekly declines of 1-3% until last week’s 7.3% decline.

SCFI also saw rates fall 5.6% last week on trades in the Pacific and Middle East.

However, Xeneta chief analyst Peter Sand believes that a 70% drop in contracted rates will be required for the Red Sea crisis to be resolved and vessels to return to operating via the Suez Canal.

“It is probable that rates will find a different level,” Sand conceded, adding, “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.”

Volumes are rising, Sand said, but they are on par with volumes in 2021 and 2022, “this is not a demand-driven market,” he said.

According to Xeneta, CTS data, total volumes, dry and refrigerated, rose 6.5% in the first half of 2024 compared to 2019 volumes, from 84.1 million TEU in the first half of 2019 to 89.6 million TEU.

Over the same period, the fleet has grown by “a whopping 30.8%,” Sand said, citing Xeneta, Clarksons data, to 29.569 million TEUs by the end of the first half of 2024 from 22.603 million TEUs in mid-2019. 

“As of today: the longer sailing distances due to the Red Sea disruption make all the difference. From massive overcapacity to a tight market. Xeneta estimates that TEU miles in the first four months of 2024 are up by 18.3% year-on-year, virtually closing the gap between demand and supply - as is clear from the current high contract and spot freight rate levels,” Sand concluded.

Source: Phaata.com (via Container-News)

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