The worldwide freight sector is set to suffer a very difficult 2024, with many major operators making losses due to a significant fall in contracted rates, according to a global index of long-term contracted rates.
Describing the prospects as “ominous”, Xeneta said its shipping index, the XSI, has detected all the signs that point to 2024 being “even more brutal than expected” for the sector.
This is a result of long-term contracted rates plummeting, with the latest figures showing they fell by 4.7 per cent in October. Moreover, the index, which is an average of all long-term contracts on the market, now stands at 158.5, which is down by 62.3 per cent since November 2022.
Market analyst Emily Stausboll noted: “In essence, the global index is currently being propped up by those older contracts which were signed back in 2022 when rates were much higher.”
This means the overall index will continue to drop as older contracts expire and are replaced by ones far less favourable to freight companies, she warned, observing that despite the “financial insulation” of more lucrative older contracts, four of the major companies have reported losses in 2023.
Since it is “absolutely certain” the contracts signed in 2024 will be for less than the older deals, the losses will represent “extremely big numbers next year”.
Ms Stausboll singled out Maersk, which relies heavily on longer-term deals, as being of particular note after it posted losses in its third-quarter results, even though in theory its reliance on longer contracts means it should be hit less hard than others.
Summarising the situation, she concluded: “We always knew there was a storm coming in Q1 2024 when the older contracts expired, but it seems as though it has arrived earlier than expected.” Only through achieving “capacity management” measures can firms turn in a profit, but this will be “extremely tough to achieve”.
The situation may sound dire, but it may also be a consequence of a market correction after the global freight market endured a clunky and awkward return to large-scale operations after being hit by the Covid-19 pandemic.
However, not every firm everywhere may be struggling so much, especially any firms involved in the shipping of grain across the Baltic to and from Latvia.
As Baltic News Network notes, the turnover of grain movements was up 14 per cent at the country’s biggest sea ports, contributing to an overall rise of 4.6 per cent in grain and container freight in these ports. The figures were up 3.6 per cent overall in the country’s small ports, with 36.4 per cent of this being contributed by Salacgriva Sea Port.
Part of the reason for the rise in sea freight going through Latvian ports is the 28.9 per cent downturn in rail freight. This is a consequence of the geopolitical situation arising from the Ukraine war as coal, petrol and mineral movements have plunged.
Therefore, the Latvian situation is quite specific to that country and driven by peculiar circumstances. It stands in contrast with broader global trends that bode ill for the freight sector around the world.
