Spot freight rates preview: the Fortnight Brace suggests a flat week

Premium gave itself a sweaty slap – it’s still jolly hot in Europe – of self-congratulation after our inaugural mid-week spot rate preview last week.

We got it spot on, if you’ll excuse the pun – with the movement of one week’s SCFI (Shanghai Containerized Freight Index) continuing as a reliable indicator of the following week’s WCI (World Container Index) from Drewry.

During this year’s peak season, on the Asia-Europe trades, we have termed it it the ‘Fortnight Brace‘ principle; double-digit spot rate rises in week 1, followed by a flat or low single-digit rise in week 2; and return and repeat for weeks 3 and 4.

The double-digit spot rate increases are purely carrier-led, on the Europe-Asia trades through advertised FAK (Freight All Kinds) prices which this year have been implemented either on the 1^st or 15^th of each month.

Whether they stick or not depends entirely on demand, of course.

It largely held true in week 27 (to Sunday 5 July), although the WCI’s Shanghai-Rotterdam leg failed to match the double-digit increase of the previous week’s SCFI – suggesting that peak season pricing momentum is slackening, and Premium is ascribing a 50% chance that the WCI’s Shanghai-Rotterdam spot rates could marginally contract this week in the absence of no new FAK price levels.

On top of that, a key forwarding source told The Loadstar last Friday that “we’re already seeing reductions come in for 6 July”, while another noted:

“One clue here is the validity a few of the lines are now offering, no longer weekly, and now to the end of July which indicates no further increases, and I suspect, we may see some slight decreases.”

The acid test will be 15 July, when the next round of FAK rates is applied, with MSC at the top end targeting $7,700 per 40ft. However, “the ground looks increasingly shaky with a wide range of rates being offered in the spot market”, Linerlytica noted this week, quoting Gemini spot rates of $4,800 per 40ft.

As for the WCI’s composite index to be released today, Premium expects a moderate, sequential rise this week due to continued rises on the transpacific trades – last week’s SCFI had the Shanghai-US west coast leg up 9% and up 12% to the US east coast, although freight forwarders on the trades largely expect the peak is also nearing.

“The near-term outlook points to a market that is likely to hold steady or gradually decline rather than move higher,” said US west coast forwarder Freight Right this week.

“The recent peak appears to have been reached, and without a rebound in volume, carriers may have limited room to defend current rate levels for long.

“That said, a sharp collapse is not guaranteed. Carriers are expected to manage the decline carefully and may avoid aggressive reductions unless booking activity weakens further,” it added.

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