Baltic Exchange Information Services Ltd.

03/09/2023 | Press release | Distributed by Public on 03/09/2023 02:45

FBX Index March 2023: Looking forward

Cometh the bull/bear market cycle in container freight, with February being the month where some of the last bastions of high market rates ex-Asia fall away and into levels we haven't seen since 2019. The launch of container freight futures on The Singapore Exchange (SGX) coincides with this, coming online late February and already seeing a drive of interest. As a guide, buy/sell side depth on both FBX03 China/East Asia to North America East Coast and FBX13 China/East Asia to the Mediterranean stands at 2,670 FEUs stretching out until Q4 2024 on the FBX01 route. Whilst the potential for future volatility abounds, the short-term stability (or depression, depending on your point of view) in rates has created a more rational level to build futures market volume.

The launch of container freight futures on The Singapore Exchange (SGX) coincides with this, coming online late February and already seeing a drive of interest. As a guide, buy/sell side depth on both FBX03 China/East Asia to North America East Coast and FBX13 China/East Asia to the Mediterranean stands at 2,670 FEUs stretching out until Q4 2024 on the FBX01 route.

In terms of forward volatility, much of the 'known-unknowns' revolve around ocean liners and asset owners' control of vessels and their availability on specific routes. A few warning shots have been fired in both directions of the container market. Freight market giant Bronson Hsieh highlighted the potential for mass blank-sailings and vessel lay-ups (some of which has already happened), with ocean liners able to dig into vast capital reserves garnered during the container freight boom years of 2020-2022. This clashes with constant warnings of an impending rate-war, removing the benefit of blank-sailings whilst ocean liners chase volume and market-share at the expense of rates. Worryingly for ocean-liners looking to prop up rates on the basis of a high level of service, container freight reliability has rapidly improved as spot rates have decreased - arguably de-coupling price from service. Needless to say, this has driven a push towards greater index-linking in the physical market.

Whilst indicative of classic volatility of spot rates in the container freight market, this is also providing various points of entry for both buyers and sellers looking to hedge rates on the core front-haul trade. Further out longer-dated markets have been held up at a premium - Cal 2024 and Cal 2025 (the annual contracts for 2024 and 2025) add around an 11.7% increase from 2023 futures prices.

As for futures and how the market has progressed over the past few months, using the FBX01 China/East Asia to North America East Coast Q3 2023 contract (the contract of interest for those looking to hedge the outcome of any 2023 peak season) - these resemble a sine-wave. Starting at $2,600/FEU on 1 November 2022, futures slumped to $1,850/FEU on 1 December 2022 before climbing back up to $2,075/FEU on 11 January 2023 and slumping back down again to $1,800/FEU on 14 February 2023. Whilst indicative of classic volatility of spot rates in the container freight market, this is also providing various points of entry for both buyers and sellers looking to hedge rates on the core front-haul trade. Further out longer-dated markets have been held up at a premium - Cal 2024 and Cal 2025 (the annual contracts for 2024 and 2025) add around an 11.7% increase from 2023 futures prices. Whilst FBX01 China/East Asia to North America West Coast is the 'leading' example driving much of the other fronthaul prices - Asia-Europe rates on FBX11 China/East Asia to North Europe and FBX13 China/East Asia to the Mediterranean have seen sharp corrections downwards. FBX11 is now in range of buyers generally averaging bid levels of between $1,500 and $2,000/FEU for March to December 2023 - with the FBX11 index price almost halving in value last week.

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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