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Supply constraints continue in more pockets, but how low is the demand?

The addition of St. Lawrence’s Seaway to the map of disruptions has added yet another key pocket of constraints. The Panama Dilemma has been continuing with fewer vessels approved to pass through the locks, despite a priority for container vessels.

The ongoing strikes in the St. Lawrence Seaway, may not impose a long drag until mid-2024 as the Panama situation might.

Talks have apparently resumed and are ongoing to cull the impact. While the Suez thankfully is not, there is an upcoming transit fee rise starting the 15th of January 2024. Cancellations of key service sailings are at 7%, a little less when compared to the same time last year, but still considerably high.

And yet all this has not triggered a support or a cushion for the sinking spot container rates. A four-year Low is what the Drewry Composite aka the Drewry World Container Index (WCI) reported on the 26th of October, 2023 by quoting US$1,342. At around the 31st of October, 2023, the index would have hit a four-year low technically. Have the demand indicators been so weak, yet? We have officially entered into the holiday season, with the Chinese New Year stretch that took place in the first week.

The next year is all set to be the Year of the Dragon, a year that is supposed to bring in good fortune, luck, etc. But how pragmatic have the indicators been, so far? The Chinese factory activity has been sinking on one hand, as reported for the fifth straight time, while geopolitical tensions have been rising on the other.

A look at the rates from the Drewry perspective, for instance, sees most rates at multi-year lows. Transatlantic rates have been at the bottom end for a while. The China-Europe rates are at a stone’s throw away from rushing below the four-digit mark, currently at US$1,004. Similar rates reported by others such as Xeneta and Freightos, depict the quotes lower (US$960- US$978).

The China-Mediterranean rates too report a four-year low. What’s a little unreal is the kind of quotes in the backhaul trade. North Europe to China (courtesy: Xeneta) seems to trade at US$200 while the rate is even lower for the Mediterranean-China backhaul at US$155 (Courtesy: Freightos).

Considering the kind of Operating expenditures, this could be a brunt for the downstream players. It was once reported that certain trade lanes, say from India to Malaysia and South East Asia, clocked negative rates too.

The operators too seem to want to cushion this. While the Alliance has been shutting trade loops, sailings and services, from an operator perspective we are seeing the hike in rates- for Freight All Kinds (FAK).

A series of Gross Rate Increases (GRI) from April to August did little to stem the decline, despite momentary arrests and it seems the actual cushion could come in, just around an economic reversal. How long would that be? The GDP outlook for the globe appears to be in similar lines with 2024, so maybe a fillip post the Summer of 2024?

The way this pans is that it has been affecting and could further affect other areas of freight. Loose bulk and mini-bulk cargo sections have been finding container vessels and this could continue keeping those rates at bay.

Air Freight, on the other hand, has been kept under check. The rates spiralled up in line with the container spot price peaks but have resorted to a lower composite figure owing to lesser supply chain disruptions and can perhaps see some cushion owing to the just-in-time inventory flows in line with the holiday season.

Source: Container News

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