From not there to not there

Freight rates for sea transportation of containers on Russian routes are falling following global rates. But if the main reason for the decline in the international market was low demand combined with an increase in capacity, then in the Russian Federation the main role was played by the saturation of supply due to Russian, Asian and Middle Eastern shipping companies that replaced the world leaders, and competition between harbors. At the same time, the Russian market remains premium to the world market. As a result, players expect the New Year season to have a less significant impact than usual on rates and for low shipping prices to continue into 2024.

Freight rates on the global container shipping market have fallen by more than 60% since the summer and continue to decline, primarily on Asian routes. Rates on lines from China to the ports of Northern Europe are at minimum values, says Dmitry Sukhoversha, head of multimodal transportation at FM Logistic in the Russian Federation. “A 20-foot container can be delivered to Hamburg or Rotterdam for less than $500, and a 40-foot container for less than $900,” he notes.

Skif-Cargo commercial director Mikhail Koptev says that the container shipping market has become “accustomed to cyclicality” over decades, and in 2021-2022 “experienced unprecedented growth with record profits.”

“Now we are entering the stage of an influx of new capacity against the backdrop of a slowdown in demand,” explains Mr. Koptev. “Consumers are beginning to cut costs against the backdrop of an economy reeling from the inflation shock and a rapid increase in rates. The slowdown in demand is becoming more intense. Spot container shipping rates on major routes have now fallen below pre-pandemic levels.” According to the top manager, major players such as Hapag-Lloyd and Maersk predict a drop in EBITDA of 3–3.5 times by the end of 2023.

On the eve of the pre-holiday high season, container lines attempted to implement a general rate increase (GRI), but this did not significantly reduce the gap from previous years.

Thus, on November 9, Drewry’s WCI index for the Shanghai-Rotterdam direction jumped by 21% over the week, to $1,272 per 40-foot container. But in any case, the index still remains 45% below the level of the comparable week in 2022 and 11 times lower than in 2021 ($13,801 per TEU).

Not an easy prize

The reduction in rates in the world is transmitted to the Russian market, but with some peculiarities. Thus, says ModernWay CEO Nikolai Olshansky, the departure of global shipping lines in 2022 initially caused a significant increase in rates, large congestion in the ports of the Far East and at land border crossings. “Over the past and this year, a large number of Chinese and Russian shipping lines entered the market,” he explains. “Many of them were guided by the fact that Russia remained a premium market in terms of rates compared to those operating in Europe.”

The Russian market still retains its premium quality, especially against the backdrop of the global recession. “More and more foreign shipowners, in pursuit of at least some kind of premium, are ready to allow their ships to call at Russian ports,” notes Vladimir Gai, commercial director of the transport and forwarding company Modul. “With high demand in other markets, calling at Russian ports would be considered unjustified risky.”

However, Nikolai Olshansky clarifies, sea freight rates in the Russian Federation are also gradually falling and approaching the price level of neighboring markets. According to his estimates, this will happen in the first half of next year.

There are fewer cargoes, explains the head of the customs and logistics broker KBT, Yulia Shlenskaya, and rates are falling due to “high competition with numerous Chinese lines that burst into this market with the beginning of the Northern Military District, and the redistribution of the volume of sea transportation from the Far East to Novorossiysk and St. Petersburg , which compete with each other.”

Anastasia Kizuleva, executive vice president for maritime logistics at Noytech Supply Chain Solutions, says that the shortage of maritime services in the direction of the Russian Federation, observed in 2022, during the year “although not completely, was compensated by Russian, Asian and Middle Eastern players.”

Rates have been decreasing since June, says SOTA Logistic Business Development Director Igor Chernyshev. “There is still a certain imbalance in the Russian market associated with a drop in cargo traffic from Europe and a simultaneous increase in it in the south-east direction,” he notes. “In the last four months, due to low demand in the consumer market, volumes have been declining, and rates have dropped even more, than on the world market.”

According to Mr. Chernyshev, the drop in rates occurred in all directions, but especially from Asia. Nikolai Olshansky notes that compared to the peak indicators of the post-Covid period (2021), now rates for import container transportation from the ports of China to Russia are 2.5 times lower and 1.5–1.8 times lower than the average in 2022 year.

Compared to the pre-pandemic level (2019), rates are still 20–25% higher. “The cost of freight from the ports of southern China to the port of St. Petersburg is still at the lowest level: on November 9 from Guangzhou it amounted to $3,340 per 40-foot container,” says Igor Chernyshev. For example, Anastasia Kizuleva points out, transporting a 40-foot container from Nava Sheva (India) to St. Petersburg a year ago cost $7.5 thousand, and now it costs about $2 thousand.

Since the end of 2022, when the first independent carriers resumed ocean service from Russian ports, prices have fallen on average by two to three times, notes Vladimir Gai. “But taking into account the fact that shipowners calling at Russian ports do not have the same financial resources as the world’s largest lines, a drop to near-zero values ​​- and this is now happening in global shipping – is still not worth waiting for,” he believes .

Dmitry Sukhoversha clarifies that in November the dynamics of rates to Russia depends on import directions and specific lines. “According to the latest analytics from our partners, rates from China to the ports of St. Petersburg have decreased by $185 per 40-foot container, and from the Far East by $40 per 40-foot container,” he says.

Some companies are risking raising rates. As Mr. Sukhoversha notes, in the ports of St. Petersburg, one line introduced a GRI of $100 for a 20-foot container and $150 for a 40-foot container, citing high vessel load. Another one increased it by $50, while others decreased it by $250–550 per 40-foot container. In the Far East, two lines have reduced their tariffs by $100 per 40-foot container; for the rest, tariffs have not yet changed. The expert adds that due to the indexation of railway tariffs, rates for the ground component will increase by approximately 10-14 thousand rubles. per container.

On routes to Novorossiysk, says Dmitry Sukhoversha, the trends are contradictory: on different lines there is both a decrease in the rate by $100 per 40-foot container and an increase by $350. As Anastasia Kizuleva explains, at the beginning of autumn, sea carriers sought to “raise rates” before the start of the high season, “the market did not accept the first such attempts, but small tariff increases are confirmed for November and December.”

Ships there

“Now the global shipping industry is approaching the deadline for commissioning new large ships ordered by the lines in the pre-pandemic grain years,” notes Vladimir Gai. “But a serious increase in demand for container shipping in the world is not expected.” New capacity comes against the backdrop of a slowdown in demand, agrees Mikhail Koptev, noting that more than 700 vessels will be delivered in 2023-2024, and more than 150 in 2025, and 45% of them are Neopanamax class (12-18 thousand tons). TEU). “A large influx of new capacity, coupled with slowing trade growth, could lead to lower freight rates,” he says.

Experts agree that the “era of low prices” will last at least another year. “Large ocean lines have the financial resources to withstand such prices,” notes Vladimir Gai. “This will force smaller shipowners to continue lowering prices and agree to enter risky markets, the main one of which is now Russian.”

In the Russian Federation, there are no prerequisites for raising rates yet, says Yulia Shlenskaya. The profitability of carriers is now low, as industry competition is intensifying, says Dmitry Sukhoversha, and there is still not enough cargo on the market. According to Igor Chernyshev, it is already obvious that container traffic volumes will begin to recover no earlier than 2024. “In 2023, growth in traffic volumes along the main and regional trade routes is expected to range from 0.5% to 1%, in 2024 – from 3.5% to 4.5%,” he notes. “The final recovery of the container market We believe that transportation should be expected by 2025.”

Market participants note a weak seasonality of rates this year ahead of the New Year period. Anastasia Kizuleva believes that the usual seasonal price dynamics may return in 2024. “The high season of container shipping this year can already be considered a failure,” says Igor Chernyshev. “The profitability of delivery to the ports of the North-West is still quite low. The ports of southern Russia, in particular Novorossiysk, now operate mainly for export.”

“In our opinion, after the end of the Chinese holidays, we will see, on the one hand, a further drop in the volume of import traffic, and on the other, a slight decrease in the volume of transportation capacity due to the withdrawal of some sea carriers from the market due to price pressure,” says Nikolai Olshansky . He explains that many companies have ships on time charters and cannot afford to operate at low rates for a long time.

Natalya Skorlygina