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Valencia: Mediterranean Freight Returns To The Price Level Of A Year Ago

Valencia: Mediterranean freight returns to the price level of a year ago

Valencia: Mediterranean Freight Returns To The Price Level Of A Year AgoSource: Valenciaport

Autoridad Portuaria de Valencia (APV – Valenciaport, Port Authority of Valencia) – January 10, 2020

The Valencia Container Freight Index (VCFI) was reduced during the month of December by 3.70% to reach 1,101.31 points. A figure that leaves the reference index of the export cost of Mediterranean containers only 0.27% above the beginning of 2019. However, compared to the sharp rise in the month of November, the VCFI softens the trend and accumulates growth since its first creation data, in January 2018, of 10.14%.

While it is true that some of the determinants in the pricing of maritime transport push up freight rates, others (such as the economic context and international trade) also play a prominent role in the decline of the VCFI. Thus, it is observed that as a result of the escalation of geopolitical tensions between the United States and Iran, the price of oil adds up to another month of growth, from $ 63.21 a barrel of Brent in November to $ 67.19 in December. According to analysts, the uncertainty that it plans on this conflict could trigger oil prices in the coming months, which would mean an even greater increase in the operating costs of shipping companies.

As regards the idle fleet, it has continued to increase as a result of the installation of scrubbers (particle cleaning filters) to comply with the IMO 2020 regulations. Thus, the inactive fleet went from representing 4.5% on the total active fleet on November 11 until reaching 6% at the beginning of December, which was the highest value of the last three years, exceeding 1.38 million TEUs. However, at the end of December the idle fleet experienced a slight decrease to stand at 1.37 million TEUs, representing 5.9% of the active fleet.

According to data provided by Alphaliner, 68% of the inactive fleet is linked to the installation of scrubbers to reduce sulfur emissions. This fact supposes a strong withdrawal of supply of capacity of the market, that, in a different situation to the current one, would allow the shipping companies to soften and even press upwards the freights. However, as explained in detail in the fourth quarter 2019 economic environment report published by the Port Authority and prepared by the analyst Vicente Pallardó, in a context where the weakening of the world economy and international trade are two problems The economic growth forecasts for 2020 are not positive, as pointed out by the World Bank.

The new IMO 2020 regulation is also decisive due to the effect it is having on the rise in bunkering prices . Thus, the anticipation of the shipping companies to their entry into force has caused a clear rising trend in the price of VLSFO fuel compared to the month of November. For example, from the data provided by Ship & Bunker , it is observed how in the port of Singapore the VLSFO increased on average by 20.36% over the previous month, while in Rotterdam the increase was 11.05%. Although the shipping companies try to pass these increases in the costs on the freight with the specific surcharges related to the IMO 2020), as observed in the VCFI, this is subject to the idiosyncrasy of each commercial route.

On the one hand, we find those areas where freight rates have obtained a growth rate, among which the strong increases experienced with Atlantic Europe (15.21%), Baltic Countries (8.79%) and India (4.26%) stand out. , and to a lesser extent with West Coast Africa (0.47%). In relation to the Baltic Countries, this increase takes place in December after being the only area where freight prices fell the previous month. Meanwhile, in Atlantic Europe and India, freights follow the growing trend that began in the previous month, which also coincides with the increase in transport costs and a greater boost in exports from Valenciaport with these two areas, especially with the United Kingdom. United.

On the other hand, the rest of the areas experience a decrease compared to the previous month, highlighting East Coast Africa (4.40%), Eastern Mediterranean (2.90%), Central America and the Caribbean (-2.38%), Middle East ( 2.07%) and the United States and Canada (1.90%). These mentioned areas experienced a greater or lesser extent of freight growth in the month of November. However, despite the increase in bunkering prices , it is necessary to highlight that the weak growth of international trade limits the possibilities of shipping companies to increase freight on some trade routes where demand is already weakened. Therefore, to encourage export activity on certain routes, shipping companies have chosen to adjust freight more smoothly.

Subscript with the Far East

In the same situation is the  sub-index with the Far East , where after the steep rise in the previous month, it drops again by 20.38%, although leaving the freight at higher levels than usual for this route. As already noted, shipping companies should seek a balance in freight increases between increases in their operating costs and not ballast demand. In this sense, the imblance is already an essential feature of this trade route, so high freight levels can be even more damaging for exports.

Western Mediterranean subscript

As for the sub-index of the Western Mediterranean , freight prices increased 0.73% in December, following the upward trend of the previous month. Although the rise is moderate, it does so in an environment where exports from Valenciaport with Algeria do not pick up, while with Morocco and Tunisia they have also declined. Therefore, it seems that the shipping companies are gradually incorporating the fuel surcharge in the freight so as not to undermine exports already at low levels.

Source: Autoridad Portuaria de Valencia

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