Forward interest has started to build in line with the launch of cleared futures on 28 February 2022, with a market building largely on the longer-dated periods beyond the end of 2022. 2023 has attracted most of the interest across Asia to Europe and Asia to US routes. This has been driven by a mix of selling interest ticking the indicative value for FBX01 China/East Asia to North America West Coast, which is up by 6.23% since the beginning of January. This move upwards is largely in line with near-term support for rates. FBX01 spot prices have increased 11.03% since the end of 2021, with a corresponding 3.84% gain on FBX11 China/East Asia to North Europe. Most of the near-term supportive factors revolve around front-loading of cargo prior to Chinese New Year against a backdrop of persistent port congestion. This near-term bullish sentiment is, however, not new. A bump in rates in Q1 had largely been expected given the volume of cargo still waiting to move due to congestion. Rates have been supportive across most of the front haul routes, with constant corrections on the current and front months futures indicatives chasing a volatile spot price. Transpacific and Asia-Europe demand and prices had also led to the transfer of capacity away from lower-paying routes.

Recently (over the past two days), however, we’ve started to see cracks in price trends with all FBX Asia-Europe front and backhaul routes seeing variable drops in spot prices. FBX13 China/East Asia to the Mediterrenean is down $586 today. If this price action is sustained, you may see this result in a drop in the value of second half 2022 and 2023 futures.

Recently (over the past two days), however, we’ve started to see cracks in price trends with all FBX Asia-Europe front and backhaul routes seeing variable drops in spot prices. FBX13 China/East Asia to the Mediterrenean is down $586 today. If this price action is sustained, you may see this result in a drop in the value of second half 2022 and 2023 futures. Through the course of January, Q1 2022 futures values had flattened out significantly on the back of generally ‘stable’ sentiment for very high near-term freight rates. However, the markets beyond Q1 2022 remain heavily backwardated. Hedgers can achieve a better discount on forward rates for 2023 than they can achieve on fixed prices for 2022. Even with this, relative to the cost of very long-term contracts, the futures market still leaves plenty of room to attract selling interest.The 2023 market has been driven by sellers looking to hedge against the impact of very strong ship ordering, which will start to hit the water from mid-2023 onward. 

Whilst supply and demand of capacity will continue to be the fundamental basis for freight prices, fuel costs (and further forward, emissions costs) may start to gain more prominence on FBX rates.

Whilst supply and demand of capacity will continue to be the fundamental basis for freight prices, fuel costs (and further forward, emissions costs) may start to gain more prominence on FBX rates. General resurgence of fuel demand, and the throttling of supply by OPEC+, are bullish for the price of crude. Whilst more goes into the low-sulphur fuel price, this may result in a bigger chunk of the all-in spot price taken up by bunker adjustment factors. Emissions costs are still not well defined, but the sheer value in refitting ships and ordering ‘green’ newbuilds loads the long-term market with high investment requirements. Meanwhile, anecdotally, the uptake of very long-term deals (three years) has been uncertain. The index-linking has seen a bit of resurgence in recent months. This provides a bit more uncertainty in the underlying market. 

 

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.



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