As the year draws to a close, and ongoing declines in the Asia East Coast lane – as well as weakness in other trades such as Asia-North Europe – global composite indexes are continuing to sink. 

So much for the assumption that container lines are a diabolical cartel with the ability to control freight pricing; spot rates are still declining more than a year after they peaked. “This cliff that rates have fallen from shows there is more competition in the market than a lot of people had feared,” said Patrik Berglund, CEO of rate-tracking company Xeneta, in a recent interview with American Shipper.

Lars Jensen, CEO of consultancy Vespucci Maritime, commented on recent spot-rate action in an online post: “We are coming out of the tunnel, only to discover that the bridge we are driving onto has collapsed.”

Different spot-rate indices produce different results, but they all exhibit the same declining trend. 

According to the weekly Drewry World Container Index, the worldwide composite rate fell 78% from September 16, 2021 and Thursday. Drewry’s Shanghai-Los Angeles index declined 84% during that time span, while its Shanghai-New York index fell 73%. 

Drewry rate estimates indicate a modest decline in the first half of this year, followed by a more steep drop beginning in August. Despite the significant dip from last year’s record high, the worldwide index is still 61% higher than the pre-pandemic 2019 average.

Effect on contract rates 

The vast majority of containerized goods are moved on long-term contracts rather than on a spot basis. 

However, spot-rate movements are becoming increasingly essential for three reasons: Shippers with contracts are shifting more volume to spot to save money, reducing contract volume; spot rate declines to levels below contract rates have compelled shipping lines to lower some existing long-term rates mid-contract; and upcoming negotiations on 2023 annual contracts will hinge on where spot rates end up. Most Asia-Europe yearly contracts start on January 1st, while most Asia-US annual contracts start on May 1st.

Long-term shipping costs are already falling ahead of those dates due to new contracts signed at other periods of the year as well as old contracts being renegotiated lower. 

Long-term rates are tracked by the Xeneta Shipping Index (XSI). The global XSI dropped 5.7% from October to November, the greatest month-on-month drop since Xeneta started the index in 2019. Month on month, the regional index for US import contracts declined 8.9%. The Far East export index fell 8.5%, the most in any preceding month. According to Berglund, “We’ve already seen how spot rates have collapsed since summer. We’re now witnessing a ‘catch-up’ as existing [annual] agreements expire and new contracts come into force.”

If spot rates do not find a floor soon and continue to fall during the first half of next year, ocean carriers could face a particularly harsh reduction in Asia-US contract rates in 2023. With spot rates plummeting, ocean carriers will be in an even weaker position to negotiate next year’s accords.