FBX Index March 2023: Quiet before the storm?

The data indicators which became available over the past month all share a common trait. They show relatively modest changes compared to the previous months.

Freight rates across the board continued to decline, albeit some more than others. However, the pace of the decline was mainly quite subdued compared to the sharp drops seen in 2022. The annual Transpacific Maritime conference was held in Long Beach at the end of February, and it is an event which serves as the kick-off for annual contract negotiations especially on the Pacific. The general mood was that the decline had not yet been halted and would likely continue a while longer.

Demand also continued to decline in the newest data covering cargo being loaded in December, but at a pace commensurate with what had been seen in previous months.

Carriers continued to blank sailings – and continuing the pattern of not blanking enough capacity to match the downturn in demand.

Reliability declined somewhat in both December and January, which is the newest data presently available. However, reliability always declines in December and January as this is a seasonal effect. If seasonality is taken into account, the decline was less than what could have been expected. This means that the gradual resolution of the bottlenecks continued and the market remains on track to potentially be normal already in April.

All in all, no major upsets – but this is unlikely to continue. Instead, larger shifts could be expected in the months ahead.

Freight rates are in some cases already below pre-pandemic levels. The fact that the carriers still do not remove sufficient capacity to match the demand decline implies that some carriers favour volume increase over rate levels – and hence there is a de-facto small rate war ongoing.

It would appear from carrier statements that they expect a potential market rebound in peak season 2023. If the current market downturn is solely driven by an inventory correction, and consumer spending holds up, then this expectation could indeed prove correct. This makes it unlikely that carriers would permanently cancel planned services now. Instead, we will continue to see ad-hoc unpredictable blank sailings in the coming months. This is likely to take one of two routes. Either the blank sailings will be intensified which would halt the rate decline and call off the rate war – and shippers should expect significant service disruptions in the next few months. Or we will continue to see overcapacity when carriers within individual alliances cannot agree on pulling capacity, which could intensify the rate war in the months ahead. In that case the rate levels might not bottom out for a few months. And, in a worst case scenario, could mimic the extreme lows of 2016.

This means that the past month could be seen as quiet before the storm – but with two different “storms” looming. One where the inventory correction ends, and demand grows sharply – also prompting sharp increases in rate levels already in summer 2023. And another where the rate war intensifies sending levels much lower.
Source: Vespucci Maritime, Baltic Exchange