After surging more than 3 times, on July 8, the Euronext container shipping market experienced a collective plunge again, with multiple futures contracts falling to the limit and dropping by 16%.
The ongoing geopolitical situation in the Red Sea region continues to be an important variable in the Euronext container shipping market. The latest news on the Israeli-Palestinian peace talks and the Iranian presidential election have led to changes in the expected detour routes for the container shipping market in the coming months, driving the far-month contracts to a sharp decline. In fact, the expectation of a return to normal rates for the second quarter of next year has become the mainstream view within the industry.
Euronext container shipping far-month contracts plunged collectively on July 8, with the 2410 contract dropping by 15.59%, the 2412 contract, the 2502 contract, the 2504 contract, and the 2506 contract all falling to the limit and dropping by 16%. The 2408 contract, on the other hand, experienced a smaller decline, stabilizing at the 5400 point level and at one point dropping by 4%.
As a result, on July 8, the shipping sector on the Shanghai Stock Exchange experienced a collective decline, with COSCO Shipping Control once falling by more than 8%. The Hong Kong stock market's shipping stocks also experienced a collective decline, with COSCO Shipping Control falling by more than 10%, Orient Overseas International falling by nearly 7%, and COSCO Shipping Development falling by more than 7%. In spot freight rates, on July 5th last Friday, the Shanghai Export Container Freight Index (SCFI) for the European route was reported at $4,857 per TEU, down $23 per TEU from the previous week, a decline of 0.47%. This is also the first decline since the end of April this year, becoming an important reason for the sharp decline in market prices.
On the same day, the spot freight market for the European route of container shipping in the futures market, except for the 2408 contract, also saw declines of 4% to 6% for other contracts. On the same day, the domestic shipping and port sector on the Shanghai Stock Exchange fell 0.31%, with China Merchants Energy Control falling the most, with a decline of 1.29%.
The geopolitical situation in the Red Sea continues to be an important variable in the European container shipping market. On the one hand, there has been significant progress in the Israeli-Palestinian peace talks, with overseas media reporting that Hamas is prepared to discuss the release of prisoners without a "full ceasefire". On the other hand, Iran's former health minister Pezeshkian won the presidential election, sparking expectations of a change in the situation. The two geopolitical news items have led to changes in the long-term diversion expectations in the container shipping market, driving the long-term contracts to sharp declines.
Red Sea upheaval?
Clearly, every move in the Red Sea region affects the changes in the shipping market. According to statistics, the Houthis in Yemen launched the most attacks on merchant ships in the Red Sea and the Gulf of Aden area in June 2022 so far. The above two developments have yet to change the status quo of detours in the shipping market, according to many industry insiders.
Previously, on July 1, shipping giant Maersk said that the next few months would be a challenging period for shipping companies and businesses as it was expected that disruptions to container transport through the Red Sea would continue into the third quarter of this year. This means that the high cost of international freight is unlikely to see a solution in the short term, and freight rates on certain routes may continue to rise in the coming months.
From a seasonal perspective, July and August are peak seasons for the AEO route, and the peak season for the US route sometimes extends to September. The transport demand during the peak season directly supports the high level of the CNI EURO LT 2408 contract for container shipping in Europe, as August is just around the corner. However, for the container shipping market in April and June next year, which corresponds to the CNI FUT 2504 and 2506 contracts, the industry's expectation is that freight rates will return to normal levels.
According to the second quarter of 2024 China Shipping Sentiment Index Report released by the Shanghai International Shipping Research Institute on July 2, 57.89% of the surveyed container transport enterprises said that container freight rates would return to normal levels in the first quarter of 2025; 15.79% of the enterprises believed that it would be in September or October. Additionally, 10.53% of the companies surveyed said that freight rates will return to normal levels in December.
From the specific price levels of the futures contracts for December 2024 and 2026, they remain around 3,000 points. Among them, the 2504 contract fell to 2,889 points on the 8th, and the 2506 contract fell to 3,032.9 points on the same day. This price is significantly lower than the 5,500 points near the 2408 contract, the nearest monthly contract, in August of this year, which can be considered a 50% drop.