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Container spot rates on a free-slide

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LONDON : The Drewry’s World Container Index (WCI) slid another 5.01% to end at US$5,378.68. The fall has been so sharp, such that the Index has shaved off 1,000 points (US$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 six years.

China has reported a dip in export growth over the month of August, whilst reported activity of import slowdowns in the 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 US$10,377 in September-2021. However, ever since then it has given over half of its gains. The current-world scenario poses important psychological support of US$5,000 and the Fibonacci retracement support level of US$4,900, which appears another 8.9% below the current levels.

While supply chain congestions are still on, across various ports in Europe and the US, the waiting time for ships has come down considerably since January 2022, which also coincided with high freight rates. With better schedule reliability and vessel utilisation being normalised, there is a high chance of the support levels being tested on the downside, till October, before the holiday season demands are seen as the 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 seems 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.

Author : Gautham Krishnan

Gautham Krishnan is a logistics professional with Fluor Corporation, in the area of project logistics and analytics, and has worked in the areas of Project Management, Business Development and Government Consulting.

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