On September 6th, the main contract for Europe-bound container shipping (EC2412) closed down by 7.5%, at 1,735 points.
It is noteworthy that EC2412 has fallen for three consecutive days, with a cumulative decline exceeding 18%. Statistics show that compared to the 4,763.6 points on July 4th, the contract has seen a cumulative drop of over 63%.
Minsheng Futures stated that the current main contract EC2412 and four contracts for 2025 have retreated to the low levels after the shipping companies' detours. Founders Mid-term Futures emphasized that "the EC25 contract is already following the logic of the resumption of regular liner services in the Red Sea." Looking ahead, both macro and spot markets are still dominated by pessimistic sentiment, and even if there is a short-term rebound from extremely low levels, there will still be a correction later on.
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Regarding the main reasons for the significant decline in Europe-bound container shipping futures, Wang Shulan, an analyst at Xinhu Futures, pointed out that first, several weak macroeconomic data from abroad have further triggered concerns about recession, initiating recessionary trading. Second, under the influence of reduced cargo volumes during the off-season, it is difficult for shipping companies to maintain high freight rates, leading to continuous price reductions. Third, the geopolitical situation has not expanded, and the United States continues to promote ceasefire agreement negotiations, which has weakened the positive impact on Europe-bound shipping margins.
Founders Mid-term Futures also holds a similar view, stating that the continued reduction in quotes by liner companies and the less-than-ideal economic outlook for the United States are among the factors leading to a significant decline in the futures market.
"Due to the lack of cargo volume support, the trend of freight rate reduction has not ended."
It is pointed out that, looking at the current freight rate quotation levels, the central level of large container freight rate quotations from several shipping companies has been reduced from $5,500 at the beginning of the week to around $5,000. Maersk has taken the lead in reducing prices, and on September 5th, it offered the latest quote from Shanghai to Rotterdam for large containers at $4,700. This is the first time Maersk has quoted a price below $5,000 for large containers, reflecting that the overall cargo collection progress is not as expected, leading to shipping companies' operations to ensure cargo volume through price reductions.
From the perspective of index valuation, the lowest Maersk quote corresponds to an SCFIS index (Shanghai Export Container Settlement Freight Index) valuation of around 3,050 points. The container shipping index Europe-bound futures market has already fallen far below this level, and the market has already discounted the expectation of shipping companies' price reductions. The closing price of the near-month contract 2410 today at 2,269 points corresponds to a large container freight rate already below $4,000, and the valuation of freight rates for distant-month contracts is even lower. Whether the freight rates will smoothly fall to this level still needs time to verify.
Regarding the macroeconomic data of the United States and the European Union, the reporter stated that the weakening of the U.S. economy can be seen from the PMI data. The U.S. August ISM manufacturing PMI data was 47.2, which is below the boom-bust line for five consecutive months, indicating that the manufacturing industry continues to contract. Although the August ISM non-manufacturing PMI data met the expected value of 51.5, the service industry and others have always performed stronger than the manufacturing industry. Currently, U.S. employment data performance is an important factor affecting the Federal Reserve's interest rate cut actions. The U.S. August ADP employment (small non-farm) number announced last night was 99,000, with an expectation of 145,000, which is significantly lower than market expectations. Tonight's non-farm employment data will verify whether the U.S. economy will fall into a recession.
"The weak European economy will also affect the demand for container shipping in the European shipping routes." The analysis states that in terms of European macroeconomics, the Eurozone's August CPI year-on-year increase was 2.2%, down from 2.6% in July, which is the lowest level this year. The Eurozone's August manufacturing PMI was 45.8, maintaining this level for three consecutive months. Since July 2022, the Eurozone's manufacturing PMI has always been below the boom-bust line, indicating that the Eurozone's economy is weaker than that of the United States.Additionally, Jia Ruilin, a senior researcher at Galaxy Futures, has calculated the supply gap in container ship capacity. Referring to the supply and demand situation in 2023, there is still a supply gap in the Europe route.
According to the calculation, from September to December, the theoretical deployment of capacity on the Europe route could increase by 220,000 TEUs. Looking at the current level of capacity deployment on the Europe route, which is 4.43 million TEUs (without considering the situation of shipping companies' voluntary suspension of voyages), the increase is 5%.
Looking at the long term, once the Red Sea crisis is resolved and supply and demand enter a situation of oversupply again, the rapid expansion of the fleet poses a potential challenge for the future market supply and demand situation. Currently, it is expected that the delivery volume of new container ships in 2024 will set a new record, with the fleet growing by about 9%, significantly exceeding the growth of global trade volume. However, it still cannot make up for the ton-mile demand brought about by rerouting. In 2024, the supply will still be tight, but from 2025 onwards, the supply and demand growth rate difference is expected to start turning around.
The analysis states that the current Europe route shipping market has shifted from being supply-driven to a demand-driven buyer's market, where cargo volume is crucial for shipping companies to adjust freight rates. If the cargo volume continues to be ineffectively improved, the trend of falling freight rates is likely to continue until before the Spring Festival.
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