August FBX Index: Looking Ahead

JUntil the end of July, we saw a sharp upturn in volatility in spot containerized freight markets heading into the third quarter of 2022, a seasonal peak in demand widely expected to support spot prices in the short term. This is in stark contrast to the norm for containerized freight, which typically sees rates increase by 10-20% in response to a rush in demand resulting from inventory replenishment, primarily in North America and Northern Europe.

Instead of a spike, we saw spot price erosion on almost every route listed by CME. FBX01 China/East Asia to the West Coast of the United States experienced a 59.66% decline in spot levels from May 3 to July 29, 2022. During the same period, FBX03 China/East Asia ‘East to the US East Coast fell 48.21%, retaining its marginal value and coming in slightly later than the West Coast route. This appears to have been driven by an abandonment of congested west coast ports, which has boosted rates to the east coast. This also resulted in a delayed impact on spot rates on the East Coast compared to the West Coast. Support on FBX03 traded on Aug 22 at $10,000, but using Q4 as a benchmark, FBX03 Q4 (22) has fallen over the same period, losing around 36.69% in value since inception may. FBX01 Q4(22) also experienced the same erosion in value, down 45.6%.

On Asia-Europe routes, the pace of change has been much less severe. During the same period (May 3 to July 29), the FBX11 China/East Asia to Northern Europe fell only -8.74% on the spot. FBX13 China/East Asia to Mediterranean was down only -5.40%.

However, the notion that prices were based on bearish sentiment was shattered on August 1, as the price of the FBX13 index fell -$1,319 in one day. Conversely, FBX11 rebounded +$874. In May and June, the value of FBX13 Cal23 actually increased by +1.15%. Largely priced in by sellers, FBX11 and FBX13 maintained a sharp pullback in the forward curve – consistently delivering value to companies on the buy side looking to hedge container capacity, particularly in the long run for 2023 and 2024.

This value comes with very pronounced volatility triggers. The cost of fuel, although high, has started to come down thanks to increased production from OPEC+. At the same time, LNG was boosted by the lingering economic impact of the war in Ukraine. Moreover, since late July, tensions between China and the United States have escalated significantly over Taiwan. Any action over Taiwan threatens stability along China’s main export routes to the United States and Europe, with a large amount of capacity tied to Taiwan-based liners and owners.
Source: Baltic Stock Exchange

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