August is a month of strong pricing, resurgent demand, and equally strong interest in protecting the cost of freight Q1 2021 and beyond. We started the month sitting on a number of Q3 interests hoping to slice the top off of what has been an exceptional price peak on the Trans-Pacific route (up 152% from the beginning of March to the end of August along FBX 01). This price increase has predictably been reflected in the North America East Coast route – FBX 03.

 In the near term, and perhaps a reflection of the impact index-linked contracting has on the cost-of-freight for BCOs and NVOs alike, FBX 01 has been tracking the SCFI USWC base port rate, less around 10-20%. This is very important, not only is FBX providing us with a far more granular dataset in which to settle Container FFAs, the routes that also reflect SCFI routes are potentially fungible.

This means that if a business holds any Index-Linked Contracts settled against SCFI (either a carrier or a shipper), will be able to fix their rates with Container FFAs settled against FBX. Currently, the forward view of the market is priced in at a similarly high level as the current trans-pacific spot rate.

However, volatile Trans-Pacific spot business is one side of the story. It’s arguably been dominating the equally volatile projections for carrier profit or loss over the past 6 months, swinging from a proposed $10bn+ 2020 loss in late May (John McCowan, Blue Alpha Capital) to a proposed $9bn 2020 profit in late June (Lars Jensen, Sea-Intelligence). Most of this is set aside from the generally flat pricing and lack of activity on trans-Atlantic routes, and the slow climb of FBX 11 (China to North Europe).

Moving forward, we will be transitioning from a market impacted on a global and uniform scale by a single black swan event (COVID-19), into a market far less certain to predict. 

In March, every carrier was in the same boat, low to nil volumes demanded aggressive capacity cuts, making it a very straightforward tactic to only introduce capacity as demand returns, bolstering Q3 trans-Pacific pricing. Demand is returning, as is capacity. Carriers will face another test as demand continues to fluctuate, raising a question as to how well all carriers will be aligned post-COVID. Will we see another price war? What will be the impact of the return of 10,000 TEU+ vessels to these routes?

Our proposal to the market is clear. We are hoping to stabilise the market based on healthy business financials, carrier and shipper price stability, and an FFA market that allows all container freight related businesses the ability to actively manage their pricing and exposure regardless of volatility.

 

About Peter Stallion, Head of Air and Containers, Freight Investor Services

Peter Stallion heads up the Air and Container Freight desks at FFA brokerage Freight Investor Services. He started his career in air freight chartering, and has a passion for emerging risk management markets and the logistics industry.