Xeneta: Transatlantic trouble as extra capacity undermines freight rates
January 19, 2023
has marked a change in fortunes for ocean freight rates from North Europe to the
US East Coast, with both spot and long-term contracted prices falling by around
10% since the start of the year.
According to the latest data from Oslo’s Xeneta, long-term rates are now under
USD 6 000 per FEU, while spot rates are below USD 6 500 per FEU for the first
time since December 2021. Prior to the New Year, this trade had withstood market
forces with only “soft” rates declines, compared to the dramatic falls seen on
other key ocean corridors since last summer.
Peter Sand, Chief Analyst at Xeneta, says the reasons behind the current decline
are more complex than many may imagine.
A victim of its own success?
“We are all aware of the macroeconomic forces impacting global consumer demand
and international freight volumes,” he states. “That, and the easing congestion
at ports, is pushing rates down across the board as carriers suddenly compete
for business which, this time last year, was flooding through their doors.
However, there are additional forces at play when it comes to this US East Coast
“In short, it’s a very commercially attractive route right now. When you take
freight rates and average transit times into account, it offers far greater
revenue and, thus, profitability for the carriers than competing corridors. So,
with the increase in blanked sailings from the Far East and the general easing
of congestion, carriers have moved available capacity to this trade to take
advantage. That, as we can see, is now undermining the high rates that attracted
the vessels in the first place.”
Follow the money
Sand points out that North Europe to US East Coast trade continued to deliver
exceptional profitability for carriers through to the end of last year. At a
time when rates were nosediving elsewhere.
He explains: “In Q4, the average transit time here was just over 20 days,
delivering an average revenue per FEU per day of USD 360 per FEU for carriers.
In contrast, the revenue per FEU per day from the Far East to the US West Coast
was only USD 160 per FEU. So, if you have available capacity, where would you
look to deploy it? It’s a no-brainer: You follow the money.”
Falling from high
the downward pressure on rates, Sand says the market needs to keep a broader
sense of perspective. He notes:
“We shouldn’t lose sight of how historically strong prices are at present. If we
look back to January 2021, rates for both spot and long-term agreements for the
trans-Atlantic fronthaul averaged around USD 2 000 per FEU, roughly a third of
today’s prices. That demonstrates just how high this trade has been flying… but
also how much room there is for further falls.”
Interestingly, Xeneta’s data also illustrates that this trade is one of very few
where spot prices are still above long-term rates. An important distinction for
shippers that, on competing trades, maybe tendering for long-term contracts at
or around today’s spot rates.
“That’s not a strategy to utilize here,” Sand concludes, “as you’ll most likely
end up paying over the odds in the long term.”