Much ado about spring General Rate Increases on the transpacific trade through the end of April, with FBX01 China/East Asia to North America West Coast bumping up almost 71% in one day as the GRI posts. The forecasts for transpacific in the near-term rode almost entirely on this GRI, with very little actual positive change in underlying container throughput into Long Beach. The impact of the GRI was felt in curve values immediately with the front of FBX01 futures all the way through to Q4 2023. However, these values have since settled back down to pre-GRI levels. FBX01 Q3’23 provides a useful benchmark to track this, values starting on 2 February at $1,875 have picked up slightly as of 28 April to $1,950. Futures markets on FBX01 have maintained a premium versus spot prices, with bid interest absorbing the GRI shock as a mark of confidence that GRI levels won’t be maintained. The full FBX01 Cal’24 contract increased $100/FEU only during the same timeframe, from $1,800/FEU to $1,900/FEU.
Beyond some of the noise surrounding spring GRIs, much more substance can be found with substantially increased buying interest across all fronthaul routes making the market more attractive to asset owners and ocean liners for the purposes for hedging. The drive for buyers comes squarely in line with late renewal of contracts, RFQs going out through April and May ready for a Q3’23 to Q3’24 annual rate. The shift over to spot and index-linked procurement also creates opportunity for futures trading after the re-negotiation (or outright collapse) of contract rates many businesses were signed up to in earlier 2022/ late 2021. In line with this, orderbooks keep growing – MSC’s orderbook is at approximately 1.6 million TEUs with the majority of the overall orderbook delivering inside of 2024. Support found from bunker costs have also continued to erode (with some notable blips) – Brent Crude June 2023 futures dropping from $104.75/barrel in early June 2022 to $77.69/barrel by 26th April 2023. This follows a noticeable trend down in terms of bunker costs.
The real upside in the market rides on general market recovery – European and North American economies still reel from inflation, taking money out of the pocket of the same consumers that had supported the boom in freight demand over the Covid period. We’ve also seen relatively little vessel scrapping despite current market direction, which is counterpointed towards a move to slow steaming and capacity management. It could well be ocean liners opting to hold on to their vessels in the hope of a “Q2 2020 moment” where remand returns against a backdrop of tight available supply.
Source: Freight Investor Services, The Baltic Exchange