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Home Industry Opinions Container freight rates drifting lower

Container freight rates drifting lower

Hongkong and Shanghai Banking Corporation Limited (HSBC) reported that the Shanghai Containerised Freight Index (SCFI) declined by 1.5% week-on-week, while China containerised freight index fell by 1.2%, mainly due to weaker Intra-Asia rates, likely because competition intensified amid slower than-expected China recovery.

The recent decline echoes HSBC's view that spot rates are losing momentum due to a demand-supply imbalance. However, during the recent first-quarter results, liners unanimously expressed that they could settle contracts at profitable levels and the current spot freight rates, which are below costs, will not be sustainable.

Hapag Lloyd pointed out that c65% of the costs on a voyage are variable. Thus, industry participants will have an incentive to more aggressively blank sailings and slow steam to tame oversupply and support freight rates.

Capesize outperformance continued: Capesize TCE earnings rallied by 10% w-o-w, breaking above the US$20,000/day mark to the highest level in the year-to-date, while Panamax TCE earnings fell by 14%.

We think recovering coal exports from Australia to China (typically carried on Capesize vessels) helped support earnings. We expect larger vessels to benefit more from China's recovery, while smaller vessels could see a delayed comeback only when macroeconomic headwinds recede.

Tanker rates were volatile but could remain firmly profitable: Weakness persists in the VLCC TCE rates, dipping below US$15,000/day likely on lower Middle East Gulf-Asia trades.

We expect VLCC rates to find near-term support and see sequential recovery in rates driven by improving Chinese transportation and refinery demand.

In fact, OPEC raised its 2023 China oil demand growth forecast to +0.80mbpd y-o-y (from 0.76mbdp last month), whereas its April output declined by 0.19mbpd.


The article was written by Parash Jain, Head of Shipping & Ports & Asia Transport Research at HSBC





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