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 crisis caused by the Covid-19 health emergency continues to affect economic activity and condition international trade flows. Recent weeks have seen an economic reactivation in many parts of the world and that is reflected in trade traffic. In this context, the Valencia Containerised Freight Index (VCFI) for June shows a slight rebound, with an increase of 1.62% on the previous month, to 1,266.07 points. The figure for accumulated growth since the start of the VCFI series in January 2018 stands at 26.61%.

In terms of the indicators with an impact on this trend, it must first be pointed out that since early May the price of bunkering has been trending upwards to date, albeit at levels still below those of previous months. Oil prices have performed similarly. European Brent bottomed out in April at 18.38 dollars per barrel, the lowest price seen this year, before progressively rebounding to reach an average of 40.20 dollars for the month of June. May saw strong growth of 36.82% in the price per barrel, due to increased demand with the reactivation of economic activity.

In this regard, one of the main conditioning factors for the performance of freights is the functioning of the international economy scenario, which drives the supply and demand conditions of capacity on the maritime transport market. According to the latest data published by the International Monetary Fund, in its June 2020 World Economic Outlook, the world economy is expected to contract by 4.9% in 2020, with international trade following the same trend but with a more intense contraction, of 11.9% (including tourism activity). In fact, in the first quarter of the year, global trade contracted by 3.5% year on year, a figure that incorporates the effects of the crisis caused by the Covid-19 health emergency and the reduction of economic and commercial activity in much of the world. However, the IMF is optimistic on the prospect of recovery the year 2021, when it expects trade flows to bounce back and grow by 8% as domestic demand recovers. Despite this encouraging figure, these projections remain vulnerable to the economic risks that have faded into the background as a result of the pandemic, such as an escalation in tension between China and the United States on multiple fronts or the evolution of oil prices arising from conflicts between different producer nations.

Shipping companies have adapted to this global market scenario of reduction in demand. They have, among other measures, reduced capacity on some of the world’s major container shipping routes, such as those between Europe and the Far East. This is reflected in the idle fleet figures from early June (8 June) which reached 521 units and 2.61 million TEUs, representing 11.2% of the total active fleet (Alphaliner). Of the 521 inactive vessels, just 11.7% are idle for the installation of scrubbers (filters that purify fumes from vessels to prevent particle and sulphur emissions), meaning the rest are idle due to the current market situation. Nevertheless, the latest data to be published (22 June) show a reduction in idle fleet levels, representing 9.9% of the total active fleet, or 453 units, an improvement on the figures from earlier the same month. While this remains a high percentage for idle fleet, it is a reduction on the idle fleet levels of late May, which reached 11.6% of the total active fleet. According to Alphaliner, this slight decrease is not expected to be an isolated occurrence and the coming months will see a progressive reduction in the idle fleet percentage as shipping companies reincorporate some lines that were temporarily suspended due to the exceptional situation caused by Covid-19.

Performance by areas

Despite the fact that the VCFI general index shows moderate growth in freight levels, it is true that when analysed by areas, most are shrinking and there are only three areas where maritime transport prices are on the increase. These areas where export freights increased are the Middle East (+13.08%), the Far East (+8.40%) and the Eastern Mediterranean (+0.20%). This is largely due to the fact that, in a local context, after the reduction in traffic in the worst months of the pandemic (March, April and May) flows handled by the Port of Valencia have begun to recover in June. As a consequence, the pressure of greater demand has led to the increase of freight prices due to restrictions on space (blank sailings) on the Far East route which often includes passage through the Middle East.

In terms of other areas, the most acute decrease seen is in Atlantic Latin America (-14.17%), followed by Africa East Coast and the United States while the other areas have seen minor decreases (of less than 1.5%). While low bunkering prices could be a key common factor in all areas, the peculiarities and trends in freights in each area reveal divergences in terms of performance in each of them. In the case of the United States and Canada, from January to April 2020, frights grew at levels in excess of 1.5%. May was the first month to see a strong decrease, which continued into June, wiping out the increases of previous months. Atlantic Latin America is in a similar situation, having strung together several months of growth up to March.

VCFI Western Mediterranean

Freights with the Western Mediterranean fell by 1.56% in June, with the value of the index standing at 1,049.28, a figure that failed to confirm the trend for May, when there was a slight increase. If we analyse the performance of freights in the first half of 2020, we can observe how freight rates grew by 11.57% in January with the entry into force of the new IMO 2020 rules before falling in the following three consecutive months. This trend was eventually broken in May with an increase of 3.28% but that was not maintained into June, which saw a return to negative figures (-1.56%). On balance, the increases are greater than previous decreases, meaning that the index has remained above 1,000 at all times, which is uncommon for this sub-index.

VCFI Far East

With respect to the Far East, after a reduction in May, freight rates grew again in June by 8.40%. Thus, the VCFI regional sub-index for the Far East stands at 1,871.90 points, its historic maximum since the start of the series in January 2018. While freights with this area have traditionally been marked by low levels in export flows, recent months have seen significant increases, compensating for the months of negative growth. Since the start of the series, accumulated growth stands at 87.19%. In the current climate, according to data from Alphaliner, the Europe-Far East route has seen a 17.1% reduction in capacity as of 1 June 2020 compared to the same data last year. This reduction in capacity has placed pressure on freights in light of an increase in demand.