Container LTA freight rates rose 100%, MSC rare statement: no hope of restoring normalcy to the container market this year

Although container spot freight rates are falling, but long-term freight rates have seen a significant increase. And industry insiders have agreed that this year's container market will remain difficult.

Container LTA freight rates are still rising

The latest data show that although container spot rates have been falling recently, in the container LTA rates in the past March rose again by 7%, year-on-year is up 96.7% - nearly double. The Xeneta Shipping Index (XSI®), a maritime freight tracking platform, reported this in a recent market report.

Xeneta's XSI® is a global aggregation of the latest crowdsourced ocean freight rate data. Participating companies include ABB, Electrolux, Continental, Unilever, Nestle, L'Oréal, Thyssenkrupp, Volvo Group and John Deere, among others.  

XSI said, "The combination of ultra-high demand, coupled with port congestion, equipment shortages and supply chain disruptions caused by the New Crown Pneumonia outbreak have pushed freight rate trends to new heights - generating huge profits for carriers, but also concerns for shippers. "  

Recently, in response to investors' questions about the company's LTA signings on the main routes in Europe and the United States, COSCO Shipping Holdings Managing Director Yang Zhijian also described, "Take the Pacific route, for example. New year contract negotiations have now officially started and some early bidding customers have already signed new year contracts, and the tariff level is expected to at least double year-on-year."

Yang also said, "As time progresses and the spot market gradually warms up, the progress of 2022 contract signing is expected to continue to accelerate, and is expected to complete the majority of new contract signing by mid to late April. Depending on the customer's situation, contracts will start to be executed one after another during January 1 - May 1, 2022, and most of them will be executed from May 1.

In addition, "For Asia-Europe routes, negotiations for new contracts for 2022 are progressing steadily as planned, and we have already exceeded the stage of signing targets, with an expected 200-400% year-on-year increase in 1-year contract prices. Depending on the customer's situation, the contract start time varies from January-June 2022, mostly in January and early April."

When will the freight market return to normal

Patrik Berglund, CEO of Xeneta, commented, "Long-term freight rates are currently at record high levels and there is no doubt that consolidators are currently in a good position to negotiate contracts, but there are signs that a future adjustment may be imminent."  

Berglund noted that freight rates on key Asia-Europe routes, for example, are also falling as shipping lines such as Maersk and MSC announce plans to cancel some planned sailings in response to sluggish demand. Berglund added that the new crown virus could make a comeback in China and lead to further blockades, which could increase market volatility and vulnerability.

In a recent weekly market report, McKinsey, a leading global management consulting firm, noted that in a worst-case scenario, "normalization of the container shipping market would need to be delayed until 2024, with freight rates remaining high in 2022," and that McKinsey's current view prefers that the market is moving in the worst possible direction.

Rolf Habben Jansen, CEO of Hapag-Lloyd, Germany's largest and fifth-largest global container shipping company, recently said at an online forum, "Frankly, we think McKinsey's forecast is too pessimistic."

Lars Jensen, CEO of Vespucci Maritime and a container analyst, agrees that McKinsey's pessimistic scenario will only become a reality if it adds more trouble to the problems the container market is already struggling with. However, Lars Jensen also believes that "it is not impossible".

Lars Jensen said that in addition to the problems caused by the coronavirus pandemic, world trade is now also being affected by the war between Russia and Ukraine.

The war itself may have a limited impact on trade, as the overall volume of imports and exports between Russia and Ukraine is relatively limited. But the sanctions imposed on Russia by the West could have an impact on the supply chain, which is now at a critical point of near collapse.

Tim Scharwath, CEO of DHL Global Forwarding, part of the DHL Group, also said, I think it's still a tough year, and everything that's happening right now continues to make an already fragile system even more unstable.

MSC: Congestion in the consolidation market is likely to worsen this year

MSC, which has now topped the world's largest container shipping company, also said in a rare statement that it does not believe that the tight container market will improve this year, and the company even believes that the congestion in the container market may further deteriorate in the coming months.

MSC Chief Operating Officer Claudio Bozzo recently said in a speech at the Italian Chamber of Commerce Italian Chamber of Commerce, the current congestion will continue for the remainder of 2022.

Bozzo said the current epidemic in many parts of the world is still causing problems in the supply chain, for example, it is still difficult to find drivers and hire workers in many places because of the epidemic.

Bozzo believes that "in the next few months, there will be even fewer vessels available because shipping companies have deferred maintenance work on their vessels as much as possible, but now certain maintenance can no longer be deferred, so capacity will be further reduced. Most importantly, we are seeing higher oil and fuel prices which could further push up freight rates, while higher prices for ocean freight will be paid primarily by carriers, but ultimately by the end consumer."

In addition, Bozzo believes that the Ukraine issue could pose a problem for the movement of seafarers, with 14 percent of the company's seafarers coming from Ukraine and Russia. In addition, MSC is also concerned that cyber attacks from Russia could pose a threat to the shipping industry.