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Year of continually rising freight rates comes to an end

Long-term contracted ocean freight rates have fallen for the past two months, according to a leading industry index, suggesting a cooling in the heated market for container ships.

The latest Xeneta Shipping Index, which is based on data from leading global shippers, was down 3.6% in January, following a fall of 1.6 in December. Previously, there had been 14 months of consecutive increases back to September 2020. Even so, contracted rates are 98.1% up year-on-year, demonstrating the current strength of shipping lines in international trade.

Patrik Berglund, ceo of Xeneta, believes the logistics chain remains stressed ‘with demand outstripping supply, port congestion, a lack of equipment and the ongoing pandemic impacting across key global trades’.

Berglund says this puts carriers in a position to dictate terms to smaller shippers, through elevated rates and limiting availability, while locking in ‘bigger fish’ at favourable prices. ‘As a result, large numbers of customers are pushed over to spot rates and, with no alternatives, are forced to put their hands deep into pockets that have grown increasingly bare.’

The news comes after research from shipping consultancy Drewry indicating that the profits of the world’s largest lines in 2021 would be over US$ 150 billion (EUR 132 billion) – more than the same lines’ combined profits over the previous 20 years. The British International Freight Association has called this ‘blatant profiteering’ and appealed for action from competition regulators, including the UK government.

And, although the decrease in the XSI will be welcome news for hard-pressed shippers and BCOs struggling to get back onto the front foot in their contract negotiations with carriers, it is too early to call time on rate hikes, says Xeneta’s CEO, Patrik Berglund.

‘The logistics chain remains stressed, with demand outstripping supply, port congestion, a lack of equipment and the pandemic impacting key global trades,’ Berglund says. ‘This puts the carriers in a position where they can dictate terms to shippers through elevated rates and limited availability, while locking-in ‘bigger fish’ at favourable prices.’

Indeed, this tough stance from the container lines is obliging many smaller, and even mid-sized, shippers to ‘survive’ on the respective carrier’s spot platform for bookings, causing high levels of financial and operational uncertainty in supply chains.

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