Never let the ocean freight container shipping industry lull you into a false sense of security – the next black swan is often only around the corner.
That’s the message from rate analytics platform Xeneta, which has revised its 2024 outlook report published in October 2023 to accommodate the dramatic changes resulting from the Red Sea crisis.
When the Xeneta 2024 Outlook Report was published in October 2023, average spot rates on major trades out of the Far East had fallen to levels not seen since the start of 2019, before the Covid-19 pandemic brought chaos to the market,
“I stated back in October that the global picture could radically alter in the event of another Black Swan event. This warning has proved to be well-founded in light of the chaos stemming from the Red Sea crisis during the past six months,” says chief analyst Peter Sand.
“Demand is back at 2021 levels for ocean freight, with increasing capacity the story of the year so far.”
In Q4 last year, 2024 was looking to be a freight buyer’s market, but a lot can change in a small amount of time. Every black swan event impacts the market differently, which is why understanding the nature of each one is vital, says Sands.
The market spike during 2021, for instance, was caused by extraordinary consumer demand growth for Chinese goods, particularly in the US (but also Europe) during the pandemic.
“Now, instead of being a demand issue, 2024's chaos centres around capacity. Namely, container ships diverting around the Cape of Good Hope rather than transiting the Red Sea. This means more shipping capacity is required to transport the same number of containers.”
These changing dynamics impact stakeholders differently across the market.
For example, carriers expected to record massive financial losses in 2024, but the skyrocketing spot market will see them deliver a full-year profit, which seemed improbable six months ago.
Sands explains that there are also important distinctions between the spot and long-term market. “While long-term rates aren't reaching the same heights as spot rates (major trades out of the Far East have increased by more than 300%), they are less likely to be honoured. “The smart shippers,” he adds, “recognise that the current conditions are only temporary and are already thinking about how to position themselves for when the market does eventually turn in their favour.”
The current events are another reminder that the market needs to think seriously about how it buys and sells ocean and air freight.
It doesn’t matter if you have a long-term contract – if you can’t use it to ship your goods then it is worthless. These contracts are seemingly only valid as long as the market doesn’t move significantly in one direction – and that is an extremely precarious position to be in.
According to Gartner, HSBC and others, uncertainty is here to stay, and the container shipping industry needs to work proactively to address this.
