Freight rates plummeted! The spot price fell below the long-term contract price! Over 70% of companies want to renegotiate

The spot freight rate of container ships has been continuing to fall, and has been lower than the long-term freight rate recently. A large number of customers have begun to consider renegotiating contracts or even breaching the contract.

Recently, all major shipping indexes showed that the overall freight rates of major routes such as the US, Europe and Mediterranean routes continued to decline due to lower-than-expected transportation demand.

Sea freight spot price falls below long-term contract

The latest issue of Drewry's Composite World Container Index (WCI) shows that it has plunged 3% this week to 7,285.89USD/FEU. A 10% decrease from the same period in 2021.

Shipping rates from Shanghai to Los Angeles plummeted by 5%, or 426USD to 7,952USD/FEU;

The Shanghai-Genoa and Shanghai-New York spot prices also fell by 3% to 11,129USD/FEU and 10,403USD/FEU respectively;

Shanghai-Rotterdam freight fell 2% or 186USD to 9,598USD/FEU.

Drewry expects the index to continue to decline slowly over the next few weeks.

Data from the Xeneta platform shows that the current spot freight rate on the trans-Pacific route to the US and West is 7,768USD/FEU, 2.7% lower than the long-term contract price, and the long-term contract price is 7,981USD/FEU, a year-on-year increase of 159.9%.

The gap between the spot and contract freight rates on the trans-Pacific route to the US West has narrowed rapidly. The price per FEU of some containers on the US West Line is less than US$7,000, and the spot price has fallen below the long-term contract price.There is an upside-down phenomenon, and the spot price of the European line is also in jeopardy at 10,000USD.

Shipping companies also mentioned that although the current freight rate index has fallen, the rise in international oil prices has impacted the budget control of the American people. Retailers have not replenished their inventories in large quantities because they are waiting to see the potential of consumption.The market is worried that slowdowns and strikes will exacerbate port congestion, and the goods will be diverted to the east of the United States first, which is why the freight rate of the east of the United States is more stable than that of the west of the United States.

At the same time, NCFI said that demand for transport on North American routes has not improved, with a clear excess of space leading to increasing price declines.

Over 70% of companies want to renegotiate long-term contracts with shipping companies

In addition, due to the limited demand for freight on the European route, the loading rate has not performed well recently. Under pressure, some liner companies have taken the initiative to reduce freight rates to strengthen cargo collection, and customers have also begun to seek renegotiation with shipping companies.

Data from Xeneta's client survey shows that 71% of respondents said they would seek to renegotiate long-term contracts if the market changed significantly;

11% of the companies surveyed said they are prepared to default and look for other alternatives to reduce costs;

However, only 8% of companies surveyed said they would continue to honor existing contracts regardless of changes in market conditions.

In this regard, the shipping company said that it has not received similar requests. Although when the loading rate is not high, the shipping company will cooperate with the customer to reduce the freight rate, but considering the current loading rate of the shipping company is still at a good level, it is "not in line with the current situation" to discuss the reduction of the long-term agreement.

Industry insiders said that in the past two years, shipping companies have made a lot of money by taking advantage of high freight rates, and will not easily compete with price cuts, and operators can stabilize freight rates by regulating the shipping space of routes (airlines).

Now the container freight rate is still at a high level, and the SCFI freight rate index shows that the current freight rate is still four times that before the epidemic, and the full load rate reaches 70% to 80% or even 50% of the shipping companies are making money. At present, the loosening of spot freight rates is mainly at the freight forwarding side.

Some freight forwarding practitioners believe that in recent years, the shipping market conditions are special, and the long-term contract price has been higher than before. This also leads to the fact that when the spot price falls, the price difference between the two is larger than before, which will affect the customer's willingness to continue to perform the long-term contract price. .

Another freight forwarder pointed out that the shipping company may cooperate to restart the negotiation based on the consideration of the customer's willingness to renew the contract in the coming year, but in the end it depends on the wishes of the shipping company, and there is no modifiable clause in the contract. It is not easy to revise. In addition, it has not yet entered the traditional peak season in the third quarter, so it remains to be seen whether the long-term agreement price will restart negotiations.