Due to a slump in spot prices, weak demand, and continued economic uncertainty, long-term ocean freight rates saw a sharp decline in November compared to the previous month.

The freight rate benchmark platform Xeneta predicts that rates will further decrease in the new year, and that cargo volume may decrease by 2.5% or more, leading to over 1 million TEUs of container capacity being idle at the beginning of 2023.

"The decline in long-term rates is not surprising, but the magnitude illustrates the challenges currently facing the industry," said Xeneta CEO Patrik Berglund. "We've seen how spot rates have collapsed since the summer, and after experiencing several months of very weak long-term rate declines, we are now witnessing a 'catch-up' as existing agreements expire and new contracts take effect."

Xeneta's analysis shows that global freight rates fell by 5.7% in November, with all major trade corridors showing negative import and export trends. While this marks the third consecutive month of rate declines, they emphasize that this is the largest month-over-month drop they've seen in their three years of tracking rates.

Berglund said that facing rising living costs and weak consumer demand, operators are now in a "battle for quantity" after experiencing over two years of strong demand, supply chain congestion, and capacity shortages.

He believes that the current rate decline is a clear indication of a shift in market fundamentals.

“Average rates are now falling, signaling the end of the record-breaking quarters we've become accustomed to seeing from the shipping lines,” said Berglund. “As we approach 2023, storms await a sector that is often a barometer of global economic fortunes.

While rates are rapidly decreasing, Xeneta emphasizes that they are coming down from a high point. According to their analysis, global rates are still up 67.2% compared to November 2021. However, they note that this is the first month since October 2021 that their index has seen less than a 100% increase.”

According to data from the freight rate benchmark platform Xeneta, no region has been spared from the recent wave of rate declines.

For example, European imports have fallen for the third consecutive month, decreasing by 3.5%, but still showing a year-over-year increase of 47.9%. Export performance has slightly improved due to Europe's sustained strong trade with the US East Coast, but has also decreased by just over 1%.

Far East exports have experienced the largest decline in history, dropping by 8.5%, but still showing a year-over-year increase of 68.5%. Similarly, this month's import benchmark has fallen by 6.2%, but is still up more than 30% compared to November 2021.

In the US, both export and import benchmarks have fallen significantly in November.

These data indicate that freight rates around the world have been affected, with varying degrees of decline, but still showing high year-over-year growth.

Due to low freight volumes on the trans-Pacific route, some services are reportedly "below break even" on spot rates, and data from the freight rate benchmark platform Xeneta shows a significant decrease in import rates of 8.9%, with export rates slightly better, down 5.3%.

"It's hard to see how the decline will be prevented in the short to medium term," Berglund commented. "China's ongoing zero-COVID policy means that much of the country is now in some form of lockdown, and in the US and Europe, the expected peak season for goods has yet to begin, with worrying macroeconomic indicators the main consideration."

After more than two years of rate increases and over-tight capacity, the rapidly cooling shipping market seems set to be "extremely challenging" in 2023.

Since the summer, freight rates have fallen - sharply in the case of spot rates. In the first half of 2023, spot rates on some major corridors will fall below pre-pandemic levels, and longer-term rates will quickly follow suit as older, expensive contracts expire and new, much lower ones are signed. However, longer-term rates will not be lower than spot rates in the first half of 2023.

The freight rate benchmark platform Xeneta predicts a more difficult time for global operators in 2023.

Do you think sea freight rates will rise or fall in 2023?