April 2023 Nearing the bottom? Freight rates have been in decline for more than a year, and it is clearly reasonable to start asking whether the bottom is about to be reached. But before delving into this main question, it is worth to take a slight detour. Saying that “freight rates” have declined for more than a year is not a picture all shippers would recognize. To some degree this is trade dependent. As an example, shippers on the head haul trade from North Europe to the US East Coast have seen spot rates as measured by the WCI spot index decline only since December 2022, and the WCI remain presently just below 5,000 USD/FFE versus a level of 2,000-2,300 USD/FFE in 2019 prior to the disruptions. It is also possible to find examples of contractual commitments which might not yet, or just very recently, have begun to see downwards adjustments. Hence in stating that “freight rates” are declining this is an indication of the overal l market totality. This does, as shown, not apply 1-to-1 in all trade lanes but does reflect a majority of the market. CCFI shows that the bottom probably hasn’t been reached yet A good index for monitoring this totality of the market is the CCFI rate index measuring a combination of contract and spot rates out of China. It should not be confused with the more popular, and volatile, SCFI spot rate index. The CCFI index is the only container rate index which has a very long history – it contains weekly data ranging back to 1998 and the overall index is a weighted average over all the major export trades routes out of China. Data analysis also shows that over time it is highly correlated with the global average freight rates realized by the carriers, and as such it does serve as a good indicator of the overall freight rate developments. It is measured as an index where the rate level was equal to index 1000 in 1998. In the recent spike it reached a maximum of index 3565 at the end of January 2022. In the first week of April 2023 it had declined to index 953. The first week of April 2019 before the pandemic was at an index value just below 800. From this perspective it could be argued that there might a bit further to go in case we do go all the way back to pre-pandemic levels. But there is a different, perhaps more interesting, perspective on the decline. We have seen prolonged freight rate declines several times in the past as well – how long did it take for those to bottom out? Four historical downturns Looking at the 25 years of data from 1998 to 2023 there are 4 periods of downturns worth looking at. Period 1 covers the recession in the US which was triggered by an inventory reduction – not unlike what is partially driving key parts of the market today. From the highpoint in November 2000 until the bottom was reached in January 2002 it took 63 weeks to reach the bottom. Period 2 covers the impact of the financial crisis. From the highpoint in February 2008 before the rates crashed until the bottom was reached in June 2009 it took 71 weeks to reach the bottom. After the financial crisis the rates initially increased sharply. The post-crisis supply chains suffered from bottleneck effects causing shortages of capacity – all of this with a dynamic very much like what we saw during the pandemic. When the capacity issues were resolved, freight rates dropped sharply and continued into a price war. From the peak in August 2010 until the bottom in December 2011 it took 70 weeks. Period 4 covers the price war the carriers fought in 2015/16. From the high level before the price war in March 2015 until the bottom in April 2016 it took 59 weeks. DSV – Global Transport & Logistics At DSV, we keep supply chains flowing in a world of change. We provide and manage supply chain solutions for thousands of companies every day – from the small family-run business to the large global corporation. Our reach is global, yet our presence is local and close to our customers. More than 75,000 employees in over 80 countries work passionately to deliver great customer experiences and high-quality services. We aspire to lead the way towards a more sustainable future for our industry and are committed to trading on nature’s terms. DSV is a dynamic organisation that fosters inclusivity and diversity. We conduct our business with integrity, respecting different cultures and the dignity and rights of individuals.
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