Global Container Freight Rate Index from January 2019 to April 2023 (in US Dollars)
Container freight rates oscillated dramatically between January 2019 and April 2023. The year 2021 saw an especially steep increase in global freight rates, reaching a record price of nearly 10,400 U.S. dollars in September 2021. In April 2023, the global freight rate index stood at more than 1,700 U.S. dollars.
How did we get here?
The global supply chain is a fragile system consisting of numerous links and disruption to one can send cascading effects down the chain. that need to function properly for the whole system to work. The COVID-19 pandemic turned out to be an event of such a magnitude to either bring to halt whole industries and supply chains, or severely reduce their efficiency. Due to its complexity and transcontinental nature, container shipping was hit especially hard by the COVID-19 pandemic. Since the start of the pandemic, the shipping industry has had to struggle with port closures and congestions, labor shortages, Truck challenges, difficulties with capacity utilization, as well as a lack of new shipping containers.
Container carriers profiting
While costs of operating a container fleet have increased, the surge in freight rates has not served just to cover rising expenses. Container ship operators have been reporting record-high operating profit margins since the beginning of the pandemic. In the third quarter of 2021, main container shipping companies had an average profit margin of over 56 percent, up from about 8.5 percent two years earlier. Some of the carriers are using these profits to increase their carrying capacity by buying new containers and ordering new container ships. However, the delivery of these newly ordered ships is still years away.
Current state
June 2023 is bearing few surprises for container shipping, with demand continuing its inexorable downward correction.
In its latest XSI report, Xeneta’s index of rates is down by 42% year on year, May marking the ninth consecutive month of dropping rates. And long-term rates fell 27.5% last month alone – prompting Xeneta CEO Patrik Berglund to say that “collapse” was the only appropriate descriptive word.
“This is the largest drop we’ve ever experienced on the XSI, which charts real-time global rates developments, and it paints a bleak picture of the state of the industry,” he said.
“The main driver is the fact that May marks the point when 12-month contracts in the US come to a conclusion and new agreements come into force. These reflect the reality of today’s subdued markets, so are priced much, much lower than their predecessors.
“The impact of that on the wider industry is there for all to see.”
Casualties of the first quarter included Zim, back in the red this month with a loss of $58m, while CMA CGM, unveiling its 64% drop in pre-tax earnings this week, gave the ominous warning that Q1 could be its best as the industry’s revenues “continue to return to normal”.
Glenn Koepke, GM of network collaboration at FourKites, predicted: “Volumes will pick up in Q3 and Q4, but at this pace, will be lower than 2022, which should equate to an easing of delays and available capacity heading into peak trade seasons.
FourKites also anticipates more re-shoring from China, which will introduce new dynamics into the industry.
“China will always be a dominant player in global trade – however, we have seen many shippers look to South-east Asia, India and Latin America as alternatives, while still keeping Chinese suppliers for the local market,” said Mr Koepke.
Alphaliner said this week: “On the cargo front, the news remains grim, with continued depressed rates and volumes on many key routes. Carriers are, one after another, announcing fast-deteriorating financial results for the first few months of the year, with at least two seeing the return of red figures.
“Financial prospects for the rest of the year remain generally highly uncertain for most carriers.”