Container Spot rates on a free-slide- An Analysis
The Drewry’s World Container Index (WCI) slid another 5.01% to end at USD5,378.68. The fall has been so sharp, such that the Index has shaved off a 1,000 points ($1,000) in under a month. Shipping spot rates from China, have been a deterrent factor for the World Composite Index, with rates from China to various trade lines, reporting a 40%+ dip, annually. What’s even more alarming is the way, the rates on the China-US Trade Lane have panned. The Shanghai-Los Angeles route, has witnessed a drop of nearly 60% year-on-year, losing over 14% this week. The less-mentioned, yet equally key, Shanghai Containerized Freight Index (SCFI) witnessed a near 10% fall last week, the highest in percentage terms in nearly 6 years.
China has reported a dip in export growth over the month of August, whilst reported activity of import slowdowns in US and Europe, which are now impacting the prices at a greater magnitude. With a bleak demand scenario, seen across the World in general, punctuated by inflationary pressures and high interest rates, analysts are of the view that the decline in spot rates will continue. It should be noted that the WCI, which was hovering around 1,515 just prior to the pandemic appreciated over 7x to USD10,377 in September-2021. However, ever since then it has given over half of its gains. The current-world scenario poses an important psychological support of USD 5,000 and the Fibonacci retracement support level of USD 4,900, which appears another 8.9% below the current levels.
While supply chain congestions are still on, across various ports in Europe & US, the waiting time for ships have come down considerably since January-2022, which also coincided with high Freight rates. With better schedule reliability and vessel utilization being normalized, there is a high chance of the support levels being tested on the downside, till October, before the holiday season demands being seen as a first indicator of reprieve. However, companies have been planning for the same, over the past few weeks with warehouse spaces in the US being crunched. Thus, the movement of spot rates seem interesting. The advantage of Index-based price movements can perhaps be looked into by Beneficial Cargo Owners (BCO) to renegotiate contracts with shippers or while planning for new contracts.
