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.

 

In November the Valencia Container Freight Index (VCFI) experienced the highest growth rate since the start of the historical series in January 2018, reaching 9.75% and standing at 1,143.67 points. This significant rise of the VCFI with respect to October places cumulative growth at 14.37 percentage points. The increase recorded affects practically all markets. In fact, when we analyse the behaviour of maritime transport prices by destination areas, except exports with the Baltic countries, the rest of the areas experience an increase.

Despite the fact that there are several factors influence the setting of maritime transport export prices, on this occasion, the weight of the new regulation on emissions from maritime fuels has been decisive.

While the idle fleet in mid-November has experienced a slight decrease as compared with the previous month, this remains at very high levels, representing 4.5% of the total of the active fleet to 11 November, reaching 1,037,872 TEUs. A significant part of these ships have been removed for the corresponding installation of scrubbers.

In turn, demand expectations remain low for the fourth quarter of 2019, according to the Goods Trade Barometer developed by the World Trade Organization. Analysts point to the increase of tariffs, trade tensions between the two major trading blocks and the Brexit situation, that still does not dispel any doubts and has already accumulated many months of uncertainty, as the main factors for this situation.

In this context, compliance with the new environmental regulations has resulted in an upward pressure on freight rates. According to UNCTAD in its recent report Review of Maritime Transport 2019, the transition toward low-sulphur fuels will result in an increase in shipping companies’ operating costs, caused by both the new investments required (scrubbers) and the increase in the price of new fuels.

In relation to the latter, despite the fact that this regulation will not enter into force until the year 2020, there is a clear upward trend in bunkering prices in some of the world’s major ports. By way of example, while in Istanbul, Singapore and Rotterdam (to a lesser extent) the price of the IFO continues a downward trend, the VLSFO has instead maintained a growth path since October. Shipping companies have reflected this increase in costs in the freight rates through surcharges as a Bunker Adjustment Factor (BAF). However, the effect of BAF on the price of the final freight rate may well be different depending on the trade route and the shipping companies’ room for manoeuvre to manage their impact.

On the one hand, these are the routes whose ships regularly have a high occupation rate and these allow them to set stable freight rate levels. In these cases, the increase in the final freight rate has been lower than in the rest, such as the services with the United States and Canada (1.51%), Atlantic Europe (3.34%), Africa East Coast (2.79%) and West Coast (1.27%), Pacific Latin America (5%) and Central America and Caribbean (5.14%).  In all of them, despite the volatility experienced in the second half of 2019, have followed a growing or stable trend that has not forced the shipping companies to reduce freight rate to very low levels as a strategy to capture cargo.

On the other hand, we find the routes that have followed a downward trend since the middle of 2018, as in the case of exports with the Indian Subcontinent (26.35%). Here, the restructuring of services that triggered an increase in the capacity offer led to this route experiencing many consecutive months of decline, with freight rates at low levels. As a result, the surcharge caused by the BAF makes it have a greater impact on the price of the freight rates. Maritime transport prices in exports to the Middle East are also in a similar situation, where the impact of the surcharge is 13.07%.

VCFI Western Mediterranean

With regard to the sub-index with the Western Mediterranean, the effect of the surcharge is lower than in other areas, and the monthly variation of the index stands at 0.69% and reaches 963.84 points. In this area, the traffic with Algeria accumulates its fourth consecutive month of decline, due mainly to the effect of restrictions on the export of certain materials (Algeria has become the 30th destination country of exports of Spanish tile), in contrast to the case of Morocco, which has accumulated increases in recent months.

VCFI Far East

With regard to the sub-index with the Far East in November this experienced the greatest rise out of all areas, with a growth of 60.78%. As indicated above, the impact of the BAF surcharge on low freight rates is greater, as shipping companies have very little margin to mitigate this rise. While this breaks the downward trend of the freight rate with these markets, this is caused mainly by the implementation of environmental legislation and not so much to the supply-demand balance of transport