Due to concerns about a US economic recession, shipping costs for imports from Asia on the US West Coast have decreased, while strikes by dockworkers on the US East Coast and the US election have raised concerns about further disruptions, resulting in abnormal container shipping data.
However, Peter Sand, Chief Analyst of Xeneta, believes that Mexico is a viable option for US imports, claiming that Mexican ports have shown that they can cope with the growing demand, with China's imports increasing by 30% year-on-year.
Mexico has effectively reduced some risks, "Sand said." The jump in contract rates in July indicates that some shippers and freight forwarders are hedging in an uncertain market by shipping 10-25% of their goods to Mexico, so they will not be affected by tariff increases or industrial actions on the East Coast
Higher tariffs may also pose a potential threat to US imports, as early peak seasons are seen as shippers shipping goods in advance to avoid higher tariffs. It is expected that whoever wins the election, Trump will issue a higher tariff warning than the Democratic Party.
Linerlytica also reported that the SCFI index has fallen for the fourth consecutive week due to concerns about a US economic recession.
In mid to late September 2023, the contract price from Asia to Mexico hovered at $2630/FEU. Three months later, on December 31st, the contract price dropped by more than 20%, slightly above $2000/FEU, reflecting the end of the peak season.
Since then, freight rates to Mexico have remained stable in the first quarter of 2024, and then decreased by another 5% on April 1st, reaching $1893/FEU. The slight fluctuations continued until the end of the second quarter, and then on July 1st, there was a $700 increase, an increase of over 35%. The Mexican contract jumped to over $2550 per barrel and fell again by $150 on August 1st.
The Xeneta XSI index, which measures long-term interest rates, shows that the gap between spot prices and contract prices is narrowing in major export trades from Asia to the United States and Europe. The analyst confirmed that the contract price for July increased by 2.5% to $151.5, driven by the rise in the spot exchange rate.
However, it is crucial that the XSI classification index, which measures Asian exports (including major direct trade with the United States and Europe), increased by 12.6% to 178.8.
Xeneta acknowledges that there has been little change in contract rates, but "given that the average spot rates for major frontier trades in the Far East have currently peaked and long-term rates are starting to rise, this indicates that market sentiment is changing
Xeneta senior shipping analyst Emily Staub ø ll added, "Some (rates) are still unaffected. That's why narrowing the price difference between long-term and short-term markets is important - if the spot market continues to decline, it means that the upward pressure on long-term interest rates will decrease
At the same time, due to the shift of ships from Suez to the Horn of Africa, carriers have promised to increase capacity, and Europe's one-way capacity remains strong, absorbing most of the expected excess capacity brought about by the surge in ship deliveries this year.
Due to the uncertainty of the Middle East conflict and when airlines will return ships to shorter Suez routes, Staubs ø ll explained that shippers and freight forwarders have adopted different contractual approaches.
In markets with low long-term interest rates, some shippers are satisfied with future interest rates. Most long-term contracts are in this field, "Staubs ø ll said.
These shippers charge higher rates, but the contract period is shorter, which means they will not stay at the current rate level for 12 months. These shippers receive new rates every few months, and if the ship returns to the Suez Canal, they will not be bound by higher rates.
In addition, some shippers have accepted to charge Red Sea surcharges on top of existing contract rates and have cancelled/modified this surcharge on a monthly or quarterly basis based on changes in the Middle East situation.
