Container spot rate rebound?

After suffering sustained losses in recent months, one measure of container freight rates spiked 12.8 percent last week, but another slipped 1.9 percent from the previous week.    Two indices measuring spot rates for container shipping are telling two very different stories.
   Container freight rates had been on the decline for several weeks, with both the Shanghai Containerized Freight Index, produced by the Shanghai Shipping Exchange, and Drewry’s World Container Index playing out in similar patterns. Seasonal demand for container shipping tends to grow in the lead up to the Lunar New Year, during which factories across Asia shut down, and then subside following the restocking of inventories for the first quarter.
   But after several weeks of sequential losses, the composite SCFI, which measures spot rates on 13 different trades between Shanghai and the rest of the world, rebounded 12.8 percent to a reading of 760.67 last week.
   According to the SCFI, rates from Shanghai to Europe spiked 32.5 percent from the previous week, from $584 per TEU to $774 per TEU, while rates from Shanghai to the Mediterranean grew 15.5 percent, from $601 per TEU to $694 per TEU.
   Rates from Shanghai to the U.S. West Coast likewise jumped 21.8 percent, from $1,152 per FEU to $1,403 per FEU, while rates to the U.S. East Coast ticked up 8.1 percent, from $2,193 per FEU to $2,371 per FEU.
   Despite the week-over-week growth, however, the index is currently still down 16.3 percent from a reading of 909.25 at this time last year.
   And despite the rebound in the SCFI, the composite WCI continued trending in the opposite direction, falling another 1.9 percent last week compared with the prior week and 19 percent on a year-over-year basis.
   Drewry further noted that at $1,361 per FEU, the average composite WCI through the first portion of the 2018 calendar year is down $92 per FEU (5.1 percent) from the five-year average for the index of $1,461 per FEU.
   On an individual trade-lane level, pricing from Shanghai to Rotterdam fell only 1 percent from the previous week to $1,142 per FEU but was down 27 percent from the same week a year ago, according to the WCI.
   Eastbound transpacific rates from Shanghai to Los Angeles slipped 4 percent from the previous week and 12 percent year-over-year to $1,164 per FEU, while pricing from Shanghai to New York slid 4 percent week-over-week but was still up 1 percent from the same 2017 period at $2,309.
   Rates in the transatlantic trade, however, continued to buck the negative trend. Although flat compared with the week before at $2,007 per FEU, rates from Rotterdam to New York were still 11 percent higher than in the same time frame the previous year.
   All this of course begs the question: How can two indices that measure the same thing — spot container freight rates — be showing such radically different market behavior? There are a couple of factors at play here.
   First, although both the SCFI and WCI measure many of the same rates, their composition and methodology are slightly different. The SCFI, for example, includes several “lesser” north-south trade lanes between Shanghai and the Middle East, Oceania, Africa, South America and even some intra-Asia pricing, whereas the WCI does not. The WCI also includes transatlantic rates, while the SCFI is dedicated to Asia trade.
   But this alone is not enough to explain such a large discrepancy in the aggregate indices, as the SCFI gives a much higher weighting to major east-west trade and the aforementioned positive movement in transatlantic rates should actually have served to boost the WCI, not bring it down.
   The SCFI also only tracks outbound—headhaul—rates from Shanghai, whereas the WCI tracks both headhaul and backhaul. As such, a sizable increase in the composite SCFI coupled with a small decline in the composite WCI could be indicative of rising headhaul rates that are being offset by falling backhaul rates in the WCI.
   But as noted above, the individual trade lane components of the WCI in this case actually showed declines on outbound routes from Asia, while the SCFI showed marked increases in those same headhaul trades.
   Another issue is timing. Tracking rate developments on a weekly basis is certainly important for shippers looking to get their goods from point A to B in the cheapest, most efficient way possible, but an aggregate index is likely never going to be as agile as the market itself, so certain trends and patterns may not be reflected immediately.
   In the case of the current readings, Drewry noted that it expects rates to increase this week as proposed general rate increases come into effect Tuesday, meaning the WCI could see a rebound this week similar to that of the SCFI last week, which would then render this particular conversation largely irrelevant.
   The larger issue here is that because these indices can only measure the data with which they are provided, they are not necessarily indicative of the market as a whole. Shipping experts and analysts have argued for years about the accuracy and, therefore, the inherent value of such indices.
   Just last week, for example, the Baltic Exchange and Freightos announced the creation of their new container freight index, a move that Philip Damas, head of Drewry Supply Chain Advisors, called “the wrong approach,” primarily because “there are too many indices already.”
   Instead, Damas said Drewry is “looking for standardization and consensus on a single index” and has begun discussions with industry stakeholders on such a project.
   One could argue, however, that a unified index like the one Damas proposes runs the risk of being seen as objectively accurate, even when that might not be the case.
   With the current setup of multiple indices, each serves as a single data point and analysts have the benefit of multiple —  albeit occasionally conflicting — perspectives.
   As with any economic indicator, shippers and service providers must always be careful not to take any one data point as gospel. Rather, each should be seen as a piece of an intricate and constantly changing puzzle.