04 February 2020, Tuesday
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THE long-term contracted market has experienced a third consecutive month of increases, equating to an 8 per cent overall year-on-year rise, according to the latest XSI Public Indices report from Oslo-based Xeneta.
However, despite the slight positive market developments, concerns remain over the carriers' abilities to recover the costs of compliance with the new IMO 2020 low-sulphur fuel regulations.
The XSI has tracked a difficult 18 months for the industry, with an overall trend of declining rates prevailing since summer 2018. However, based on the 160 million data points utilised by the report, that pattern has reversed only a small amount, with December's 0.9 per cent rise being consolidated by a 2.2 per cent increase over the course of January.
This, according to Xeneta's CEO Patrik Berglund, isn't what the market expected given the hype of IMO 2020 all last year, adding that there's inconsistency across the board.
In Europe the import benchmark showed progress, rising by 2.4 per cent against last month (up 9.2 per cent year-on-year), while the export figure showed a marginal increase of 0.3 per cent. The Far East import index rose by a healthy 4.9 per cent and is now up 10 per cent against the all-time low recorded in October 2019. Exports also moved in the right direction with an equally impressive jump of 4.5 per cent against last month.
The US import index recorded a rare fall, by 2.1 per cent, but is still up a huge 22.5 per cent year on year. Meanwhile the export figure surged by an impressive 5.5 per cent, the largest month-on-month increase since July 2019, leaving the benchmark up 16.7 per cent year-on-year.
Commenting on the reaction to the IMO 2020 low sulphur fuel regulations, Mr Berglund said: "The small increases are nothing to write home about. We have been tracking the effects of the new regulation in our data. Like market commentators have so far suggested, our rate data also does not show IMO 2020 having had any significant impact in the rate levels so far. The carriers are yet to find the right formula for recouping the cost of more expensive fuel. They face real difficulties on commoditised routes, where pricing is critical to achieve market share, and the slight rises we see are mainly because of basic supply and demand, nothing more."
In the Far East to Europe corridor, the long-term market ticked up, but in line with the levels seen in 2019 and 2018, which had no IMO 2020 regulations. If we look at the short-term market, we do indeed see a spike, which suggests that at this point smaller volume players seem to be the ones picking up a big portion of the new fuel costs.
The trans-Pacific is entering its negotiation period, and this is where it can get interesting for the industry. We would expect to see carriers take off the gloves and bullishly attempt to reclaim the new regulation costs during the Q2 contract period, if indeed fuel regulations have a true impact on long-term market rates. It remains to be seen and it's more important than ever to stay informed - not listen to rumours - but check the facts."
