Monday, July 22, 2024

Trans-Atlantic container rates still double pre-COVID levels

Container shipping rates are not back to normal quite yet. Trans-Pacific rates have returned to pre-COVID levels, but pricing in trans-Atlantic markets has not.

Spot container rates from Europe to the U.S. — while falling — are still more than twice pre-pandemic rates. U.S. imports from Europe remain strong, with building materials supporting volumes.

Drewry and FBX spot assessments

The Drewry World Container Index (WCI) spot-rate assessment for Rotterdam, Netherlands, to New York was $5,061 per forty-foot equivalent unit in the week ending Thursday. That’s down 32% from last year’s peak but still 2.5 times rates in March 2019.

Asia-West Coast spot rates shot far higher than trans-Atlantic rates during the 2021-2022 shipping boom but came down faster and fell further. The WCI Rotterdam-New York spot-rate assessment was 2.7 times higher than the Shanghai-Los Angeles index assessment last week.

Spot rate assessment in USD per FEU. Blue line: Rotterdam-New York. Orange line: Shanghai-Los Angeles. (Chart: FreightWaves SONAR)

Current import headwinds from bloated inventories are curbing transport demand for manufactured consumer goods, in particular. Europe, which provides about 20% of U.S. containerized imports, is much less exposed to that market than Asia.

Different spot-rate indexes show different numbers but the same trend: trans-Atlantic rates down from the peak and continuing to fall but still well above pre-COVID levels.

The Freightos Baltic Daily Index (FBX) put Europe-East Coast spot rates at $3,891 per FEU on Friday. That’s down 54% from 2022 highs but 2.3 times March 2019 levels.

Spot rate assessment in USD per FEU. Blue line: FBX Europe-East Coast. Green line: WCI Rotterdam-New York. (Chart: FreightWaves SONAR)

Xeneta short-term and long-term assessments

Norway-based Xeneta collects data from shippers on both short-term (spot) and long-term (contract) rates. Xeneta CEO Patrik Berglund told FreightWaves on Monday that the trans-Atlantic westbound market is following the same trajectory as trans-Pacific eastbound markets, only with a time lag.

“It’s coming off quite heavily,” he said.

Xeneta’s data shows average short-term trans-Atlantic westbound rates peaking at $8,660 per FEU last June, with current average rates at $4,131 per FEU. The low end of the range is now at $2,874 per FEU, down from $6,950 per FEU in August.

“The low end is moving quickly downwards, which means that some carriers are bidding lower and lower, dragging the market down,” said Berglund.

Long-term trans-Atlantic westbound rates peaked at $7,700 per FEU last August and are now down to $3,700 per FEU, according to Xeneta data.

Assuming spot rates continue to fall, as Berglund expects they will, “that means those companies that just finalized their RFQs will pay elevated contract prices [versus spot] over the coming 12 months.”

US imports from Europe stay strong

The U.S. Census Bureau publishes statistics on metric tons of containerized imports, derived from Customs data.

U.S. containerized imports from Europe totaled 3.46 million tons this January, up 22% from January 2019 and 42% from January 2018. This January’s imports were higher than in January 2021 and 2022, amid the COVID boom. 

Full-year imports in 2022 were 22% higher than in 2019 and 26% higher than in 2018.

(Chart: FreightWaves based on data from U.S. Census Bureau)

A granular look at the import data, by four-digit Harmonized Tariff Schedule code, shows what’s driving the volumes.

Comparing full-year 2022 numbers to 2019, four of the top five gainers are related to building supplies and home furnishings. The largest volume gainer was bagged Portland cement and other cement, up 644,737 tons or 101%.

The next-largest increase was for gypsum and plaster (up 485,477 tons or 165%), followed by ceramic paving and tiles (rising 466,042 tons or 31%), electric storage batteries (404,244 tons, 376%), and furniture (286,496 tons, 39%).

The biggest decline, by far, was for U.S. imports of European beer. Beer imports plunged 329,052 tons or 22% in 2022 versus 2019. 

Americans have not become teetotalers. They’ve just changed their drinking preferences. Imports of European spirits and wine more than offset beer losses, up a combined 338,518 tons in 2022 versus 2019.

Trans-Atlantic shipping capacity

The trans-Atlantic market not only provides carriers higher rates per FEU. It’s also a shorter route compared to Asia-U.S. and Asia-Europe. Thus, the rate per FEU per mile is much higher than in the other mainline trades. This should increasingly attract more capacity to the trans-Atlantic and bring rates down.

“While the trans-Atlantic run remains the most lucrative of the major east-west trades, the normalization process has begun. Rates are primed to continue easing further,” said S&P Global Commodity Insights.

According to Berglund, “Carriers definitely deploy capacity into the trades where they can make more money, so it’s only a matter of time [before the market falls further].”

Nerijus Poskus, vice president of ocean strategy and carrier development at digital freight forwarder Flexport, believes there’s a structural reason why rates have held up longer than some expected.

In a recent interview with FreightWaves, he said one reason for continued rate strength “may not necessarily be demand driven,” but rather, due to carriers not adding capacity fast enough.

“It is happening but much slower [than people thought] because it’s actually a lot more difficult to do than it seems. The reason is that Europe has a lot of ports,” he explained. In some ports “only a few carriers have services to select areas in the U.S. In some cases, you have only three carriers competing, with a few more buying slots. So, there are less players,” said Poskus.

“In order for a carrier to launch a new service, it has to sign new terminal contracts. It’s a lot of work. And carriers are afraid to do that, because they know what happens when you add more capacity. The prices go down very quickly.” This reluctance means “it will just take more time” for the trans-Atlantic to normalize, he said.

Other trans-Atlantic markets also strong

If there is a capacity component involved, other trans-Atlantic trades connecting to European ports should also be holding up longer.

In fact, trades between Europe and South America are following the same pattern. Rates are down from their highs, but the decline began later than in the trans-Pacific and Asia-Europe and rates are still well above pre-COVID levels.

The FBX spot assessment for Europe-South America East Coast was at $2,965 per FEU on Friday, 2.7 times 2019 levels. The FBX Europe-South America West Coast index was at $4,302 per FEU, 2.4 times pre-COVID levels.

Spot rate assessment in USD per FEU. Blue line: Europe-South America East Coast. Green line: Europe-South America West Coast. (Chart: FreightWaves SONAR)

Berglund noted that the rate development in the Europe-South America East Coast market is virtually identical to what is playing out in the Europe-U.S. East Coast market.

Xeneta’s short-term rate assessment for Europe-South America East Coast peaked in May at $4,211 per FEU and is now at $3,070 per FEU. The lower end of rates in this trade peaked at $3,470 per FEU in May and is now at $2,011 per FEU.

The same holds true in the eastbound trades from South America. Xeneta’s data shows “exactly the same pattern, just with different dollar values, for South America East Coast to North Europe,” said Berglund.

Thus, the tail end of the container shipping boom is not quite over. There continue to be pockets of elevated rates in the Atlantic even as the two biggest mainline trades — Asia-Europe and Asia-U.S. — are largely back to square one. 

Click for more articles by Greg Miller 

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