The annual Trans-Pacific Maritime Meeting (TPM) is held in Long Beach, USA, which is also a traditional occasion for shipping companies to negotiate long-term contracts with cargo owners. According to the Wall Street Journal, people familiar with the matter revealed that the long-term freight rates obtained by large shipping companies are already about one-third lower than last year's contracts, and the contract period is the shortest or even unprecedented, only two to three months. Will really enter into a price war.

At this year's TPM conference, participants were looking for clues to several key issues: this year is the first time since 2019 that cargo owners have the upper hand, how will the long-term agreement negotiations proceed? How long will the global trade downturn starting in the second half of 2022 last? Can container carriers stop freight rates from plunging further?

At the opening of the conference, the global shipping industry is struggling to cope with the new situation of "slowing global trade and plummeting container freight rates". According to the latest Baltic freight index FBX, the freight rate from China to Los Angeles fell by 8% to USD 1,071/FEU, far lower than USD 15,898 in the same period last year. The US East fell 10% to US$2,344/FEU, which was also far lower than the US$18,020 in the same period last year.

Over the years, TPM has been the start of the transpacific contract rate negotiation season. The parties released the air on TPM, tested each other's bottom line, and then signed a contract before May 1. According to people familiar with the matter, the long-term freight rates obtained by large shipping companies are already about one-third lower than last year's contracts. The cargo owner also said that they are getting lower freight rates.

This fits well with the Xeneta data. Thanks to the recovery of US export freight rates, the global container long-term association freight rates stopped the sharp decline in February. According to the latest shipping index (XSI) released by Xeneta, the average long-term freight rate fell by only 1% in February after a 13.3% month-on-month plunge in January. The figure was unexpected against a backdrop of weak fundamentals. Xeneta noted that the index has fallen for the sixth straight month and is down 22% since August 2022.

In the past, the contract period negotiated with the shipping company was usually one year, but Peter Sand, chief analyst of Xeneta, a freight benchmark and market analysis platform, pointed out that this year's TPM meeting was negotiating a contract with a minimum of two to three months, which has never been seen before. "The direction of the wind has completely changed, and cargo owners are currently gaining the upper hand in negotiations." Shipping companies will be under pressure in this year's freight rate negotiations.

Some analysts pointed out that in the next few weeks, shipping companies may start to cut freight rates and fight price wars to attract new customers or retain existing customers. Lars Jensen, CEO and shipping analyst at Vespucci Maritime, a Danish maritime consulting company, believes that shipping companies should double the number of canceled voyages. The collapse of demand in the past five months is triggering a price war that no one wants to see.

Shipping companies have taken measures such as idle ships and return of leased ships to avoid excess capacity. Maersk and Mediterranean Shipping Company (MSC) have been forced to face the new reality, having shelved a third of their scheduled Asia-to-US capacity over the past three months and canceled dozens of voyages to hold up 20% of their Asia-to-Europe capacity. Capacity.

Statistics show that the container shipping industry has idled about 7% of the global shipping capacity. These ships are either parked at the wharf for maintenance, or they are moored at anchorages off the coast of Southeast Asian countries such as China and Malaysia, with only a small number of crew members on board.

The container shipping industry is also facing uncertainty about the outlook for US consumer spending. If US consumers continue to spend, the backlog of inventory will be quickly digested and import demand will recover. However, if the economy shrinks, container shipping rates are expected to fall below 20% of profit and loss The level of shipping companies will start a price war.

Lower freight rates have also forced some smaller carriers out of business, such as Focus Container Line, an Australian shipping company that went into liquidation in February, and a six-month-old British shipping company that will close in October 2022, Maritime Executive reported. Allseas Global Project Logistics. Losing competition could leave shippers with fewer choices and ultimately lead to higher freight rates.

Soren Toft, CEO of Mediterranean Shipping Company (MSC), said that the current inventory level is still high, but it is expected that the inventory will be slightly reduced in the second quarter and bring growth in the second half of the year. MSC will delease up to 60 ships and scrap some older ships to keep capacity in check. The company has ordered about 130 new ships, which will be gradually added to the fleet and put into operation in the next three and a half years.

Others in the industry believe it will take longer for the container shipping industry to turn around. Maersk Chief Executive Vincent Clerc has said that U.S. importers are ordering far below normal levels and that it may take six to eight months for demand to start growing again, and that profits this year will be lower than last year.

The National Retail Federation (NRF) predicts that U.S. seaborne imports in February fell 12% month-on-month and 26% year-on-year.

Source: Shipping Information, Shipping Network