Freight rates have clearly undergone a rollercoaster ride globally in the period from 2020-2023. And during this period spot rates were more volatile than contract rates. Some carriers are more exposed to spot rates and others have chosen a strategy to increase their exposure to contracts. 

Asking the question whether stronger exposure to spot is better than exposure to contract, or vice-versa, is in itself not a simple question. 

One element of this is to see which strategy leads to the highest revenue over time – something explored further down in this article. But a higher revenue is not itself the same as such a strategy being better. A higher exposure to contracts can also potentially lead to a higher degree of customer retention which lowers costs. It can also lead to a higher degree of predictability of cargo flows, in turn leading to higher asset utilization and lower costs. 

Hence looking purely at the freight rate, and hence revenue, development is only one of multiple elements factoring into a strategic choice of spot versus contract exposure.

Another caveat to keep in mind is that even though a carrier has a high share of cargo on contract, then the adherence to contract also becomes an issue. After the market peaked in 2022 many contracts in the market were amended to better reflect the rapidly falling freight rates in the market.

But with all these caveats in place, then it is certainly of interest to ask a simpler question: Carriers with a high exposure to contracts saw a slightly lower revenue at the peak of the market. Are these carriers now seeing an opposite benefit by retaining higher rates at the market was rapidly normalizing? As not all carriers have yet published Q2 results, the following analysis looks only at Maersk, Hapag-Lloyd, CMA-CGM and OOCL.

A good benchmark to use for such an analysis is the global freight rate index published by Container Trade Statistics (CTS). This is an average over all trades globally and includes both spot and contract rates. Essentially this is what a global carrier would see if they were exposed to an average selection of tradelanes and had an average exposure to spot and contract rates.

If we say that 2019 had an average global rate equal to index 100, then at the peak of the market in Q3 2022 the rate had increased to index 299 – basically a tripling. Maersk, Hapag-Lloyd and CMA-CGM saw lower increases than this. Maersk reached index 271, Hapag-Lloyd reached 290 and CMA-CGM reached 245. OOCL on the other hand went as high as index 320. Clearly at the peak of the market OOCL benefitted from spot exposure and the three other carriers saw a loss.

But there is more to it than that. The three European carriers were somewhat slow in keeping up with the strong spot rate increases, hence also saw an opportunity loss on the way to the peak. 

Q4 2020 was the point where rates started to truly increase rapidly until the apex in Q3 2022. This was the boom market. We can then calculate the average revenue index over this period for a carrier matching the CTS index. How much did the revenue for the 4 carriers in question then deviate from the CTS index? Note that revenue in this context is not from the perspective of fixed volume but following their own reported average freight rates. Hence revenue impact from changes in market share is not included in the following.

It turns out that during the boom market Maersk and CMA-CGM had revenues which were 13% lower than they could have been had they been exposed to the market on average. For Hapag-Lloyd it was slightly less at a revenue loss of -10%. Conversely for OOCL who manages to secure revenues which were 8% higher than had they followed the market average. 

To some degree this can be said to be the price paid by the three European carriers to be more exposed to contract markets – and providing their clients, on average, slightly more rate stability than what was the case in the market as a whole.

But what about the market normalization in Q4 2022 to Q2 2023. Let us call this the bust period. Did the carriers with higher contract exposure then manage to perform better than the CTS average – hanging onto higher contract rates slightly longer?

For OOCL their revenues during the bust period were 13% lower than the CTS market average. Hence they clearly benefitted during the boom, but also underperform during the bust. 

For Hapag-Lloyd they did indeed overperform in the bust period. Their revenue in this period is 12% higher than the CTS average. It would therefore seem that they did manage to hedge the idea of lower revenue in the boom period against higher revenue in the bust period.

This is not the case for Maersk and CMA-CGM. Maersk’s revenue underperformed the CTS index by 6% in the bust period and CMA-CGM underperformed by 7%. 

Looking at the quarterly details, both carriers are basically back to matching the CTS index in Q2 2023 and hence might stand to reap benefits in the rest of 2023, but for now they do not show that the lower contract rates in the boom period led to a cushioning of the rate declines in the bust period.

As a final technical note, the CTS rate index on a quarterly basis has been calculated with a 1-month lag time to reflect that the carriers also typically only recognize revenue in their accounts as cargo gets delivered, and not at the time of loading.