Container report Aug 19By james tweed • Aug 21st, 2011 • Category: Containers
* DUE TO HOLIDAYS, AUDIO WILL RETURN ON SEPT 1 *
Thank you for downloading the tanker market report from Coracle Online and GFI for August 19th 2011. This report will look at the derivative and physical markets.
We start by looking at the paper market and the Shangahi North West Europe route. Last week we said that for a shipper who wanted to reduce their freight rate risk exposure, it would make sense for them to buy container freight derivatives. Looking at the forward curve, we can conclude that the assessment of the market was correct. Nevertheless, we are concerned about the current state of the economy and consumer confidence. It appears that the spot market is the driving force behind the Cal’ 12 being valued higher, however we expect to see some weaker months to come. So it might be a good idea to start selling the Cal’ 12, especially as it is trading around a 37% premium to the spot market.
In terms of the Shanghai US West Coast route the strong momentum in the physical market this week has been priced in the forward curve today. For those of you who are planning to sell, it is good to bear in mind that it is much easier to sell volumes in a rising market than in a falling market.
Now the physical market and the Asia Europe route and the positive momentum on the spot market makes it more likely that part of the PSS will stick on the 1st of September. However, we are reluctant as to whether the PSS will be able to stick for a prolonged period. Maersk’s volume from Asia to Europe in the first half of 2011 grew only by 5% Year on Year, which is not nearly enough to consume all the extra tonnage in the market. The flurry of activity seen recently is mainly due to the rush to get volumes moved in September prior to the Golden Week holiday in China (1st to 7th Oct); it is uncertain as to how volumes will remain for the rest of Q4. Surprisingly enough, both freight forwarders and carriers are singing from the same song sheet. There is a herd mentality for freight rates to go up. Some people say this is justified, others say that it’s only a bubble waiting to be popped. We’ll leave that up to you to decide.
On the Transpacific route some people cited that the stronger CNY is also having an impact on Chinese exports, with the CNY having appreciated
1.2% against the US Dollar in just the past month This, in conjunction with a waning US economy and weak consumer confidence, makes the demand outlook increasingly anaemic. It appears that the TSA recommended PSS for the Asia US.W.C lane of $400 /per FEU will not be fully implemented on the Transpacifc trade lane as long as the supply demand imbalance remains.
The situation for the route Shanghai USEC looks slightly more positive, though given that only gained $180 it isn’t possible to charge the full PSS.
In terms of more general market Comments, the World Container Indices (WCI – a joint venture between Cleartrade and Drewry) is launching their new set of indices on the first of September. Their indices will track the freight rates for 11 routes on both the East – West and West – East
trade lanes around the world. WCI has asked us to start marketing the following routes for trading freight derivatives:
40ft Shanghai – Rotterdam , which is 98% correlated with SCFI NW Europe
40ft Shanghai – Los Angeles , which is 94% correlated with SCFI USWC
40ft Rotterdam – Shanghai
40ft Los Angeles – Shanghai
Our analysis shows that the WCI routes originating out of Shanghai are highly correlated with the SCFI routes. It will be up to the market participants to decide which index will become the preferred index for derivative trading. The added value of the WCI is that they provide indices on the backhaul routes to China for the derivatives market place. We understand that it is extremely difficult to get attractive fixed period quotes for the back haul routes. Tthe back haul routes don’t have a good correlation with the front haul routes and this became particularly clear in 2008, when the very strong dry bulk market resulted in more bulk goods being transported into China in containers. This lead to a spike in the backhaul rates, whilst fronthaul rates were declining. Managing back haul freight rates through derivatives can be highly beneficial for shippers, who are shipping price
sensitive goods. Meanwhile we can imagine that liner companies will be keen to sell back haul freight derivatives at attractive rates. It is always a struggle to get the utilisation levels up on the back haul routes, and by selling freight derivatives liner companies can protect themselves from a poor freight market.
Now we give some technical comments.
CMA CGM and Maersk recently announced that their jointly run AE-8/FAL 5 service will be re-routed at the end of August for ten weeks. The service will be re-routed around the Cape of Good Hope instead of through the Suez Canal. This will result in a reduction to fronthaul capacity, especially with sailing omissions at Chinese ports in the first two weeks of October during the Golden Week holidays in China
We thought that it might be good to see what impact “Golden Week” has had in previous years had on the CCFI. We have chosen the CCFI because there is a longer history for that route.
As the graph in the show notes shows, “Golden Week” has had no impact on freight rates, with the index rising 50% of the time and falling 50% of the time.
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