Spot rates have an indelible impact on contracts rates on the trades from Asia to Europe and North America, according to quantitative analysis by the maritime analyst SeaIntel.
The research, released in SeaIntel’s Sunday Spotlight report, shows a correlation in excess of 95 percent between spot rate trends and contract rates trends.
“Developments in the spot market are seen to work their way into the contract market two to three weeks later,” SeaIntel said. “As the spot market is a leading indicator for the contract market with such a high correlation, the actual size of the spot market is irrelevant in terms of its ability to show market trends.”
The correlation also showed contract rates are prone to rapid and frequent changes, belying the notion that contracts are set in stone.
“The findings actually confirm two opposite behaviors in the market at the same time,” SeaIntel said. “It confirms that fixed contract rates are by no means fixed, as otherwise the lead-time from changes in spot rates to changes in contract rates would be much longer than two to three weeks. However the difference in volatility between spot and contract rates confirm that a significant number of contracts are indeed being adhered to by both sides – or at least changes in those contracts are not as severe as changes seen in the spot market.”
SeaIntel’s research also showed spot market rates remain more volatile than contract rates.
“Seen over the last three years, the spread between high and low rates is twice as high for spot rates as it is for the contract rates,” SeaIntel said. “On this basis, it is therefore clear that carriers with a high exposure to the spot market will also be more exposed to the extremes of the market than carriers with a stronger emphasis on contractual cargo.”
Contract rates following spot rates
