BAROMETER. Ocean freight rates started to fall on most major routes in January, as the Chinese New Year approached. The new shipping alliances will come into operation in a difficult environment.
From November to mid-January, the shipping companies made use of a strategy which worked well for their financial situations. Thanks to numerous port call cancellations, the end-of-year demand peak was met, as expected, with limited capacity. This scenario, which was written in advance and announced by MSC, brought unexpected respite to the FAK rates market in the autumn and was adopted in the main by MSC's fellow operators. This technique enabled them to perform over expectation during the final months of the 2024 calendar year, thanks to a sort of finance sector-style end-of-year rally.
Spot market rates tumble
The trend began to reverse, however, in January. Demand, which had been stimulated in the preceding months by the end-of-year festivities and the increase in consumption associated with them, as well as by the prospect of additional customs duties on exports to the United States, began to weaken. At the same time, the Chinese New Year celebrations got under way relatively early this year, on 29 January, which meant that Chinese factories began closing in mid-January. Production will only return to normal in mid-February and will coincide with the start of the new services operated by the reconfigurated shipping alliances, which are due to start operations on 25 February.
With demand for space ex- Asia falling more than expected since mid-January, spot market rates took a clear downward path and FAK rates for February sailings could already be found at below USD3,000/40' on Asia-North Europe routes via the Cape of Good Hope. This is a low, not to say a very low rate at a time when the curtain is about to go up on the new shipping alliances.
Annual negotiations go into extra time
It is proving difficult to get annual contracts signed. In the white paper we wrote in October on the 2024-2025 negotiating round, we recommended that shippers opt for a "late bird" strategy. We can only say that this is exactly what they are doing. It is very difficult for a shipper to conclude an agreement without knowing if the Red Sea is going to be reopened to shipping and how the services of the new alliances are going to perform. And, since, at the same time, spot market rates have become more acceptable from a budgetary point of view, it is not a good time to sign annual contracts.
Red Sea reopening unlikely
After more than 15 months of conflict, Israel and Hamas agreed on a ceasefire which came into effect on 19 January. On the following day, the Houthis let it be known that, if the ceasefire was respected, they would limit their attacks in the Red Sea and the Gulf of Aden solely to ships directly linked to Israel. In another indication that the situation was easing, they released the crew of the Galaxy Leader, who they had been holding captive since 19 November 2023.
The talk turned immediately to the possibility of a de-escalation in the Red Sea, with container carriers returning en masse to the Suez Canal. But the shipping companies prefer to take a cautious approach (...)
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