Jan 5

Coffee Weekly Report - 2024 01 05

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  • Global container rates surged 61% in the past two weeks to $2,670 per 40-foot container due to Red Sea tensions.

  • Alternative routes, prompted by attacks, impacted Asia-to-Europe and US East Coast routes, absorbing excess capacity.

  • Shanghai to Rotterdam and Genoa rates rose by 115%, helping carriers reach breakeven, but the strength is temporary, expected to decrease post-hostilities.

  • Transpacific liner rates rose 56% to $2,769, impacting various industries, including potential delays in 36% of Q1 global coffee exports due to the Red Sea conflict.

  • Escalation may also affect robusta prices, decrease NY-LN arbitrage, and trigger higher exports from Brazil and Uganda.

Global Container Rates Surge Amid Red Sea Tensions

Global container rates have surged due to rising tensions in the Red Sea, with a 61% increase over the past two weeks, reaching $2,670 per 40-foot container as of January 4, according to the World Container Index.

Attacks on marine vessels in the Red Sea have prompted ships to take longer alternative routes, impacting Asia-to-Europe and US East Coast routes, since the threat of attacks has led major container liners to pause Red Sea transits.

This rise has absorbed excess capacity in the market, leading to increased rates, particularly with Shanghai to Rotterdam and Genoa rates up by approximately 115%.

While these rates have helped carriers reach breakeven levels, the strength is considered temporary, expected to decrease once hostilities in the region subside and supply-demand imbalances widen.

Figure 1: WCI Spot Container Rate ($/FEU)

Source: WCI, Bloomberg Intelligence

Figure 2: Container Volume by Lane – Asia – Europe (‘000 TEUs)

Source: Bloomberg

In the transpacific route, liner rates surged by 56% sequentially to $2,769 per 40-foot container in the week ended January 3. Spot-rate volatility affects liner operators directly, but also has a cascading effect in commodity markets, also impacting railroads, truckers, freight forwarders, and intermodal marketers.

For coffee, the route affects mainly origins from Asia and Southeast Asia. Considering the three main exporters in the region (Vietnam, Indonesia, and India), roughly 36% of the first quarter global exports may be delayed – as the three countries represent approximately 11M bags from the 30.5M bags average that are exported during the first quarter of each year.

Further escalation of the conflict may add volatility to robusta prices, decreasing the NY-LN arbitrage. Additionally, other robusta-producing origins may see an increase in FOB differentials – such as Brazil and Uganda – as well as a trigger for higher exports in the first quarter, which would be supported by 23/24’s Brazil availability and the secondary harvest in Uganda.

Figure 3: Average Monthly Exports (‘000 bags)

Source: ICO, Vietnamese Customs, ICB, Bank of Indonesia

In Summary

Global container rates surged 61% in the past two weeks to $2,670 per 40-foot container due to Red Sea tensions. Attacks prompted alternative routes, impacting Asia-to-Europe and US East Coast routes, absorbing excess capacity. Shanghai to Rotterdam and Genoa rates rose by 115%.
Global container volume increased 9.3% YoY in October.

Transpacific liner rates rose 56% to $2,769, impacting various industries. The Red Sea conflict may delay 36% of Q1 global coffee exports. Escalation may impact robusta prices, decrease NY-LN arbitrage, and trigger higher exports from Brazil and Uganda.

Weekly Report — Coffee

Written by Natália Gandolphi
natalia.gandolphi@hedgepointglobal.com
Reviewed by Lívea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

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