Container Freight Futures EOD Brief – 20 Jan: Futures pause as the spot market begins to catch up

The futures market was relatively unperturbed by the latest news out of the Middle East and the impending return of Donald Trump to the White House. With much of the downside risk priced in, and all the cargo that could be shipped early already in US warehouses, perhaps this shouldn't come as too much of a surprise. Traders are in wait-and-see mode, looking for firm signals that container ship traffic through the Red Sea can resume, and which carrier will move first.

The nearby February and April contracts held stead and settled at 1955.8 and 1252.0 points, and while the June and August contracts closed almost 3% down, the average price throughout the day was in line with where the market was last Friday. October and December both closed at under 1000 points, but the settlement price remained at just above that threshold, with October settling at 1011.3 points while December settled at 1007.8.

While the futures market remains in a holding pattern, the spot market is beginning to catch up. The SCFIS Shanghai-N.Europe index fell almost 500 points from 3258.68 to 2787.38 - down 14.5% WoW - hitting its lowest level since mid-November. It also narrowed the gap between the futures market and the spot market from 1256.18 to 831.58 points. At this rate, the futures and spot market rates would converge just after Chinese New Year, so it's possible traders are comfortable with their expectations for February at around 2000 points and don't see any reason to readjust their positions for now.

In percentage terms it looks like the only contracts that kept up with the spot rate decline were the longer-dated contracts, but a glance at the absolute numbers shows that expectations moved by no more than USD 100-200/FEU. The market reaction to the ceasefire, carrier alliance reshuffle and lack of blank sailings largely happened in the first two weeks of the year, while the last two weeks saw only relatively minor adjustments to traders' expectations. Thus, unless we see any dramatic collapse in spot rates, rate expectations may have hit a floor for now.

These rate expectations correspond almost exactly with what Maersk is asking for online for a 40' container from Shanghai to Rotterdam, with 2000 index points roughly equivalent to USD 3200/FEU.

When plotting futures against the SCFIS spot rate index we can see that market expectations for February rates peaked in late November, when the spot index was still rising. February futures then plateaued until late December, when another rapid decline brought them down to their current level of just above 2000 points. Spot remained elevated until the end of 2024, followed by a gradual decline over the first two weeks of 2025. Only once the combination of a Gaza ceasefire and a lack of blank sailings hit the spot market last week did we spot rates begin to converge rapidly with the February futures.

For anyone looking to hedge and lock in these rates for 2025, the INE recently announced a 50% cut to their exchange transaction fees which will apply throughout 2025. In fact, based on the latest exchange announcements (https://www.shfe.com.cn/publicnotice/medium/202501/t20250110_824313.html), growing industrial participation in the futures market is among their KPIs for this year, so we may well see further policies to promote this.

You can find more information about how the contract works and how it can be used for locking in freight rates on our info page at https://bands.financial/cofif-competition-2024/resources.html#Intro.

Our partners at Linerlytica recently launched a regular in-depth INE EC market update with plenty of additional detail and insights into what's happening on the China-North Europe route.

Best regards,

Vincenz