OSLO: Freight rates on Europe to Asia trades have started to track the broader container market lower after a period of resistance.
According to a market update from freight rate benchmarking company xenetaspot and long-term freight rates are starting to fall after a sustained drop in volumes.
Spot rates for the main front-haul reefer routes now stand at $4,240 per FEU as of January 23, after holding above $5,000 per refrigerated for nearly two years. Spot rates have fallen below contract rates for the first time since 2019, after a sharp decline in December, Xeneta said.
By comparison, long-term rates were just below $4,500, down from the September 2022 peak of $4,850 per FEU.
“Spot rates falling below long-term contracts is a classic sign of a weak market,” saying Peter Sand, Chief Analyst, Xeneta. “This is one of the busiest reefer lanes in the world, with a strong rate history, but still not immune to the forces affecting containerized cargo today.
“What we are seeing is a prolonged decline in demand/volumes, especially in China, and that, in addition to easing supply chain congestion and available equipment and capacity, is translating into lower prices. We saw spot rates fall below long contracts in major “dry” trades in August, and it looks like the reefer segment is now catching up. Arguably the surprise is that prices stayed so high for so long.”
Refrigerated container volumes from Europe to Asia have decreased since 2020, by 4% in 2021 and 13% in 2022, which equates to a demand loss of 100,000 TEU from January to November 2022.
“Weakening demand from China is the culprit here. Over the 11-month period, we witnessed a 30% year-on-year drop in demand in China, equivalent to 115,000 TEU. The only reason the overall loss in the Far East was smaller is that demand in North Asia and Southeast Asia grew by 7.2% and 2.6% respectively. These changes caused China’s overall share of the reefer container business in the corridor to fall from 51% in 2021 to 41% last year. Time will tell if this trend continues.” Arena said.
Rates remain “relatively strong” on a historical basis, Xeneta said.
“So there is certainly room for more movement here. It will be interesting to see if reefer container developments continue to reflect the dry market. Here, when spot prices fell below contractual agreements late last summer, we saw significant gaps open up. Spot prices essentially fell faster than the long-term market could follow. The gaps have closed now, but spot rates are still lower than contract rates.
“Will the same thing happen with refrigerators? What will the ‘new normal’ look like for a rapidly evolving market, both in dry and cold operations? It will be exciting to look at the data and find out what comes next, both for carriers and the carrier community.”
