Ocean container carriers are urgently pushing for spot freight rate hikes this November, aiming to curb a decline in rates and gain leverage as they approach long-term contract negotiations with European shippers. The latest figures from Xeneta, a prominent freight rate intelligence platform, reveal that average spot rates on primary routes from the Far East to North Europe and the Mediterranean are expected to surge by 15-25% starting November 1.
Currently, spot rates sit at $3,390 per 40-foot container (FEU) to North Europe and $3,430 to the Mediterranean. This is a sharp drop of around 55% and 49%, respectively, since August. Xeneta’s Chief Analyst, Peter Sand, cautions European shippers not to be alarmed by the November spike, describing it as a desperate effort by carriers to arrest the steep rate decline. According to Sand, carriers may attribute the hike to disruptions stemming from ongoing Red Sea conflicts, though the overall trend remains bearish. Sand also notes that the November rate increase might not hold up in the long term, given the market’s downward trajectory.
Long-Term Contracts Under Pressure
Many European shippers are now entering critical negotiations for new long-term contracts slated for January. An inflated spot market could give carriers an edge by potentially applying upward pressure on long-term rates. However, the recent dip in the Global Xeneta Shipping Index (XSI®), which tracks valid long-term rates, shows a 5.6% drop in October to 157 points, marking the first decline in three months. Notably, the XSI® sub-index for Far East exports, which covers the major routes to North Europe and the Mediterranean, also decreased by 7.5% in October, settling at 194.4 points.
Sand sees these shifts as promising for shippers. “The latest data shows a favorable trend with long-term rates declining, especially on routes between the Far East and Europe. Previously, shippers faced a staggering difference, paying up to $4,420 more on the short-term spot market versus long-term rates in August. That gap has since shrunk to just $389, primarily due to falling short-term rates.”
High-Stakes Negotiations Amid Market Volatility
With the long-term market’s downward shift, upcoming negotiations between shippers and carriers are likely to be tough, particularly given 2024’s volatility, partly driven by the Red Sea conflict. Carriers may argue that rates to North Europe remain substantially elevated—up 224% compared to a year ago, mainly due to this conflict, which is expected to persist into 2025. Meanwhile, shippers will likely point to the recent drop in spot rates to counter proposed long-term rate hikes.
Both parties aim to avoid the risk of locking in unfavorable rates amidst a fluctuating market. Sand suggests that index-linked agreements, which adjust to market shifts, may gain traction as they can offer stability to both sides in case of sudden market changes.
Source: Xeneta
