According to new data from Xeneta, container shipping companies are weighing risks and benefits in negotiating new contracts as the market continues to be affected by uncertainty in the Red Sea.

Based on the latest data from the Xeneta Shipping Index, ocean container carriers are balancing risks and benefits in negotiating new contracts as the market remains affected by uncertainty in the Red Sea.

The latest data released by Xeneta shows that the Global XSI (average freight rates of all valid long-term contracts in the market) remained relatively stable in April at 154.3 points, only increasing by 1.7% compared to March.

However, looking at the secondary indices within this global figure reveals a dynamic market, with the XSI for European Imports reaching 171.8 points, a 9.2% increase compared to March and the largest monthly increase since June 2022.

However, the XSI sub-indices for US Imports decreased by 9.4% in April to 150.6 points. And while the Global XSI figures for April show a slight increase compared to the previous month, it is still down by 50.1% compared to April 2023.

Emily Stausbøll, Senior Shipping Analyst at Xeneta, said: “We have seen a strong increase in XSI imports from Europe in April, largely due to the ongoing impact of conflicts in the Red Sea.”

“However, as spot market rates on routes like Far East to the Mediterranean continue to be over 60% higher than 12 months ago, you can see carriers pushing for even higher long-term rates.”

“The reason carriers are not demanding higher long-term rates is because they fear overcapacity in an uncertain market.”

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

Even the sub-index XSI for European Imports, which recorded strong monthly growth in April, also decreased by 34.2% compared to a year ago.

Stausbøll added: “There has been a record high number of new container ship deliveries each quarter since Q2 2023, but conflicts in the Red Sea have largely shielded carriers from overcapacity until 2024 as re-routing operations around the Cape of Good Hope require maintaining more vessels than scheduled.”

“If the situation changes and we see a significant return to the Red Sea with large-scale container vessels in the next 12 months, it will heavily impact carriers with overcapacity and spot market rates could plummet.”

“Yes, carriers want higher long-term rates, but they also need to ensure long-term cargo volumes. That’s the delicate balance they’re trying to strike, balancing risk and profit in such an unpredictable market.”

“Carriers and shippers may wish for a crystal ball to know how the next 12 months will unfold, but the reality is they don’t, and this uncertainty illustrates that each negotiation is different.”

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

With many US shipper contracts extending from April to May, next month’s XSI figures will reveal how recent negotiations have unfolded.

Stausbøll believes market data and surveys are central to these discussions.

She said: “Spot rates from Far East to the US East Coast have steadily declined by 33% from their peak in early February after conflicts in the Red Sea escalated in December. Spot rates from Far East to the US West Coast have dropped by 31% in the same period.

“US shippers have been using Xeneta data in long-term contract negotiations to show weakening spot markets and ensure significant price decreases between bidding rounds. These new long-term contracts will take effect in May, so we can expect to see further developments on the XSI in the coming month.”

Source: Xeneta/ Container News

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