The traditionally resilient trade in reefers from Europe to the Far East appears to be slowly succumbing to the same market forces as the rest of the containerized ocean freight sector, with sustained declines in volume now being followed by spot and long-term rates falls.

Role reversal

According to the latest data from Oslo’s Xeneta, the spot rate on the leading fronthaul reefer route now sits at USD 4 240 per FEU (23 January 2023). After a period of almost two years defined by prices in excess of USD 5 000 per FEU reefer container, a sharp fall in December has changed the character of the market, with spot rates now below contracted prices for the first time since October 2019.

Xeneta’s crowd-sourced data shows a current long-term rate just shy of USD 4 500 per FEU reefer, after peaking in September last year at USD 4 850.

Prolonged decline

“Spot rates falling below long-term contracts is a classic sign of a weak market,” comments Peter Sand, Chief Analyst, Xeneta. “This is one of the world’s busiest reefer routes, with a strong rates track record, but even it is not impervious to the forces impacting on containerized freight at present.

“What we’re seeing is a prolonged decline in demand/volumes, especially to China, and that – in addition to easing supply chain congestion and available equipment and capacity – is translating to falling prices. We saw spot rates fall below long-term contracts on the main ‘dry’ trades back in August, and it looks like the refrigerated segment is now playing catch up. The surprise is arguably that the prices stayed so high for so long.”

China goes soft

Here Sand points out that reefer volumes from Europe to the Far East peaked back in 2020, and have been declining ever since. Volumes fell by 4% in 2021, accelerating to a 13% drop in 2022. This equates to a loss of 100 000 TEU from January to November 2022.

“Softening demand from China is the culprit here,” Sand states. “Over the 11 month period we actually witnessed a year-on-year fall in demand of 30% to China, equivalent to 115 000 TEU. The only reason the overall loss to the Far East was less than this is that demand into North Asia and Southeast Asia actually grew, by 7.2% and 2.6% respectively. These shifts saw China’s overall share of the reefer business on the corridor fall from 51% in 2021 to 41% last year. Time will tell if this trend continues.”

Mind the gaps

Despite the declining rates, Xeneta’s historical data shows that prices remain “relatively strong”. In the third quarter of 2019 long-term reefer contracts could be signed for “only” USD 2 000 per FEU.

“So, there’s unquestionably room for more movement here,” Sand concludes. “It’ll be interesting to see if the reefer developments continue to mirror the dry market. Here, when spot prices fell below contracted agreements at the end of last summer, we saw significant gaps open up. The spot prices essentially fell away faster than the long-term market could keep up with. The gaps have closed now, but spot rates remain lower than the contracts.

“Will the same thing happen for reefers? What will the ‘new normal’ look like for a fast evolving market, in both dry and cold trades? It’ll be fascinating to watch the data and discover what comes next, for both shippers and the carrier community.”

Agencies

Marex Media