Forecasting Ocean Freight: Comparing Predictions on India-Europe Rates

In the dynamic ocean freight market, rates can fluctuate wildly in short periods of time. Carriers often attempt to increase rates in anticipation of forecasted demand, while shippers hope to lock in contracts before any hikes. Two recent articles in shipping publications presented differing outlooks on one major trade route – India to Europe. We’ll compare their rate predictions and see what actually transpired in the market.

In mid-July, an article titled “Steep rate hikes on the way for Indian shippers to Europe” discussed leading carriers like CMA CGM and Hapag-Lloyd announcing plans to sharply increase freight-all-kinds (FAK) rates from India starting in early August. For example, CMA CGM announced hikes to $1,000/TEU and $1,200/FEU, while Hapag-Lloyd published new base rates of $805/TEU and $810/FEU. The piece suggested these hikes were targeted at peak season imports and that “Maersk will follow suit.” Contract rates were already falling, but the expectation was FAK rates would rise.

Just this month (Nov 17th, 2023), an article related to the same topic painted a different picture. Titled “November rate plunge negates carrier pricing activity on India-Europe trade,” it revealed that westbound contract rates from India to Europe had already dropped 12-26% over the previous two weeks.
For example, the article cited Nhava Sheva-Europe contract rates falling to $525/TEU and $600/FEU, down from around $650/$700. This, despite carriers attempting to implement those announced FAK increases back in August.

So what happened in the interim period? And which rate outlook proved more accurate?

It seems the substantial FAK rate hikes out of India failed to stick through the peak season months as anticipated. While basic freight charges rose initially, anecdotes suggest the higher spot rates were short-lived under pressure from declining exports and existing overcapacity. Meanwhile, contract rates continued their downward slope, even after the announced FAK increases.

The culprit appears to be India’s slowing exports, which were already down prior to the rate hike announcements. And by October, despite a slight 6.3% annual uptick in exports that month, carrier sources remained cautious on the export outlook. This likely stifled cargo demand and carriers’ pricing power.

In essence, the July prediction of an imminent FAK rate spike was overturned by market forces. The November “follow-up” demonstrated that contract rates dropped by double digits instead, with concrete examples like the Nhava Sheva-Europe fall from $650/$700 to $525/$600. The anticipated “peak season” boost never arrived, as economic conditions hampered Indian exports.

This example highlights the difficulty of forecasting freight rates, as underlying supply and demand dynamics can change quickly.

Announced rate increases do not always come to full fruition. Macroeconomic trends must be monitored to gauge real pricing power.

For stakeholders in the India-Europe trade, the takeaway is that contract rates remain fluid, but likely biased toward further decreases until export volumes rebound.

Carriers may still try to hike FAK rates periodically, but the likelihood of those sticking seems low.

Shippers can use this window to lock in favorable contract rates, while carriers must focus on matching supply to slowing cargo demand.

Final thoughts

Overall, the turbulence in the India-Europe trade confirms that global economic crosscurrents are buffeting ocean freight. As we close out 2023, forecasting prices requires parsing carrier intentions alongside economic reality. When those forces conflict, the market itself reveals which outlook rings true.

Note:
While this example focuses specifically on the India to Europe trade lane, the market dynamics likely apply more broadly to other major shipping routes out of India as well. India-North America is another critical trade lane that has seen fluctuating rate predictions and pricing power struggles between carriers and shippers.

The impact on India-North America route

Given the overarching economic factors at play, we can reasonably deduce that export demand and resultant freight rate trends on the India-North America route this year have followed similar patterns as those described for India-Europe.

Declining export volumes would hamper carriers’ attempts to impose general rate increases out of India, regardless of destination market. Shippers able to secure favorable contract rates in the near term could benefit from the macroeconomic conditions constraining carriers’ pricing power across multiple trade lanes.