The VCFI is the index created by the Port Authority of Valencia to reflect the evolution of the market rates for the export of full containers by sea from Valenciaport. VCFI stands for Valencia Containerised Freight Index. This index will serve shippers as a tool to predict the evolution of freight rates within their markets of interest, which is a key determinant of the cost of their export operations. On the other hand, it will also be useful for operators that offer such services, providing a benchmark for the evolution of their own freight rates and those on the market.

NOTE: Given the exceptional nature of the current situation, the VCFI will continue to be published with its usual frequency, although the data should be regarded as provisional and may be adjusted later

 

The month of April saw freights continue on the path of growth which began the previous month, a reflection of the changes in the market caused by the spread of COVID-19 and the measures taken by governments to control the pandemic, all, as we shall see, in spite of the falling price of fuel and the impact of scrubbers on the increase in the idle fleet. Thus, compared to the data reviewed in March, the Valencia Container Freight Index (VCFI) registered month-on-month growth of 4.78%, taking the index to 1,334.45 points, the maximum since the indicator began to be measured.

If one thing has characterised the maritime industry in this period, that has been the general use in the industry of black sailings, or cancellations on the regular schedule of shipping companies, with the resulting reduction of capacity in order to avoid the collapse in freights. According to the data from maritime consultancy firm Drewry, the major inter-ocean routes saw 93 cancellations in the month of April of the 574 sailings scheduled, representing 16% of the total. It must be kept in mind that cancellations on trans-oceanic routes also have an effect on regional distribution networks and can affect feeder services. Using data from Sea Intelligence, it can be estimated that for the Asia-Europe and Transpacific routes, the cancellations caused by the coronavirus outbreak and its consequences have seen a reduction in capacity of 3.4 million TEU up to the second quarter, increasing to 4.6 million if the effect of the Chinese New Year is factored in.

In terms of the VCFI, the effect of these cancellations can be seen in the rising prices on a number of routes to Asia and North America over the last two months. In the case of export routes to the Far East and India, the Index saw slight decreases in April, -3.47% and -0.26% respectively, but this can be considered a minor adjustment if we take into account the increases of the previous month, which reached 33% and 42%. For the United States, April saw further intensification of the increases in freights in March. The growth rate stands at a 6.54% and it is worth pointing out that, looking at the traffic data, exports to the United States from Valenciaport showed a positive trend, reaching levels above those of 2019, with the effects of the total closure of Spain, concentrated in early April, remaining to be seen.

These cancellations have seen the idle fleet reach record levels of 441 units and 2.4 million TEU of capacity, according to data from Alphaliner. It is important to point out that, in addition to the blank sailings, a percentage of the idle fleet corresponds to vessels that are on technical stop for the retrofitting of scrubbers. That figure stands at around 20% of the total fleet, slightly below the level for the two previous months. At present, shipping companies that have opted for the use of scrubbers in order to comply with IMO 2020 regulations are seeing their investment plans under threat in light of the surprising trajectory of fuel prices.

The April price of a barrel of North Sea Brent Crude Oil was an average of 18.38 dollars (16.92 euros), falling to a minimum of 9 dollars on 21 April and closing the month at 18.11 dollars.  West Texas Intermediate Crude Oil saw a slightly lower April average, of 16.55 dollars, compared to a 29.21 dollar average in March. This downward trend in prices is also built in the price of marine fuel and, based on information from the Ship&Bunker database, the average price of IFO 380 marine fuel at the world’s 20 major ports at the end of April was 163 dollars/ton. It started the month at 203 dollars per ton and at the start of 2020 stood at 365 dollars per ton. There was an even more marked reduction in the price of very low-sulphur fuel oil (VLSFO) which opened at 672 dollars per ton in January 2020 and stood at 224 on 30 April. This represents a reduction of 80% in the differential between the two fuels.

This, along with the slowdown in economies and the effect of that on exchanges would become factors exerting downward pressure on freights, which in many cases was compensated by supply, but in other cases has been keenly felt. We can also point to falls in prices in the areas of the VCFI that come under Short Sea Shipping, such as the Western Mediterranean (-2.18%), the Eastern Mediterranean (-2.84%), Baltic Countries (-6,61%) or Atlantic Europe (-3,75%), all calculated in monthly terms. Prices for exports to Latin America moved in the same direction, with the fall for the Atlantic region especially marked (-6.1%).

While export data for the month of April are not yet available, the Chambers of Commerce of Valencia have stated that the certificates of origin issued for exports to third countries were down 37% for the month of April compared to the same month last year. The same thing has occurred in most countries, confirming this reduction in activity and quantifying its enormous impact on the economy.

VCFI Western Mediterranean

In terms of the Western Mediterranean, freights contracted by some 2.19%, similar to the previous month. The sub-index for this region stands at 1,032.01 points, which is 6.61% higher than the figure for the same month in 2019 which could be related to the increase in traffic with the two main countries in the region, Algeria and Morocco, during the first months of the year. However, the reduction in freights we have seen could be explained by the price of fuel, which showed an inflationary trend in previous months but which in this case, and with these trends explained above, is heading in the opposite direction.

VCFI Far East

Turning to the Far East, we see more intense rise in freights in percentage terms, putting the regional index an historic high of 1,838 points, rising 22.69% compared to the revised index for March which was 1,498 points. As has been commented above, blank sailings were particularly significant on Asian routes, reducing the transport supply considerably and placing upward pressure on freights which, it must be remembered, were already at very low levels due to the systemic imbalance on this trade route and are therefore very sensitive to the increases we are witnessing. In the case of China, certificates of origin for exports issued in the Valencia region in April fell by 53% compared to 2019, which would support the idea that this route is one of those hardest hit by the crisis.