Freight rates are spiking, with Drewry’s World Container Index recording large weekly gains. The Asia to US East Coast rate jumped more than US$1,300 dollars for a forty-footer and now above US$9,100 for a forty footer; Asia-US West Coast also jumped and is now at about USD$7,500 for a forty footer. Asia-North Europe has hit USD$8,000 and the Asia-Med is at USD$7,500.
“These four trades have all more than doubled their rate levels since the first week of May,” says noted container shipping analyst, Lars Jensen, who adds, “curiously the backhaul Europe to Asia rate continues to decline and is now down -13% in the same period.”
The obvious point to make here is that not all trades are the same. The Ningbo (China) Container Exchange notes that, in the week ending June 28, rates on 12 of a selected 21 routes had risen while another nine had fallen. While freight rates from Asia to North America and Europe are in the stratosphere, rates to / from China / Oceania are a fraction of the rates elsewhere, according to the information from Ningbo, which reports that on the Ningbo-ANZ (BRIS / MEL / SYD), route, rates are in the $2,00o to $2,500 range (departing Ningbo, inclusive of a variety of ocean freight related surcharges but exclusive of mostly landside charges e.g. customs fees).
It appears that – as usual – the back-haul routes are considerably cheaper than the front-haul routes, so much so that global freight analyst, Xeneta, gives the advice (which may or may not be helpful to you depending on your circumstances) that shippers could try to “become a shipper of choice – make the carrier want your volume… this doesn’t just mean large volumes… you may not be a huge shipper on a global scale but you may be key to carriers on regional trades or backhauls by filling space they may not otherwise be able to fill”.
It’s also worth noting the consensus opinion that the spot market has long diverged from long-term contract market with spiralling spot rates. Xeneta has warned that “it may get worse before it gets better”. That said, the long-term market is also being affected with 74% of Xeneta customers reporting that they have been affected by surcharges imposed following the onset of the Red Sea Crisis, while Drewry Shipping Consultants are warning that there is growing evidence of “cost contagion now spreading to contract rates”.
Freight platform Flexport reports that there was a successful general rate increase for July on all east bound trans-Pacific (i.e. Asia to North America), with rates being adjusted to the East U.S. Coast, and there is a new Peak Season Surcharge on the way.
Wanna charter a ship? It’s not likely
Carriers are trying to hire more tonnage but, in summary, the container ship charter market is practically “sold out”.
As the Hamburg and Bremen Shipbrokers’ Association reports, the charter deal flow has slowed down both because we are approaching traditionally quieter months and also because the “availability of ships has decreased further”.
Many container ship operators don’t own all the ships that they operate; they operators charter-in (i.e. hire) a proportion of ships that they operate. When they need to, the carriers can charter-in more ships from the global market… right up until the point when they can’t, which is now. And it has been so for at least some time. The generally quoted figure for the current idle fleet is about 0.7% of the global fleet of container ships, which is about 6,211 fully-cellular (i.e. box-ship only) box ships. So that’s, what, about 43 ships out of 6,200 plus?
“Tight” is a word that doesn’t begin to describe the state of the container ship market right now.
The Harper-Petersen Index is reporting about USD$70,000 a day for an 8,500 TEU vessel and about USD$28,000 / day for a 2,500 TEU vessel (which is a vessel size more typically seen in Australia). The current charter rate index (note: index points, not dollars) is at about 1,940 points and, to put that into comparison, it hit a minimum of about 809 points in late December 2023. Some trade media and analysts are also reporting that some short term charter rates are breaching “the [USD]$150,000 per day benchmark”.
White-hot charter rates (remember: high charter rates invariably mean upwards pressure on freight rates) are also being reported by the Hamburg and Bremen Shipbrokers’ Association which is reporting a time charter index surge of 30% month-on-month.
“Whopping,” the German ship brokers say. Quite.
What is going on with shipping?
And, as a famous American commentator asks, “What is going on with shipping?”
Well, you’ll be wholly unsurprised to read that it’s nearly all about the Red Sea Crisis and its consequences.
Practically all, if not all, box ships are deviating around South Africa as container operators appear to be very reluctant to put their vessels in, or anywhere near, harm’s way. Incidentally, the latest reporting indicates that transits through the Bab El Mandeb (the strait at the southern end of the Red Sea) are down from 226 t0 206 ships, which the trade media attributes to “Houthi attacks on shipping heat[ing] up”. As indicated, that’s not going to be attacks on container shipping as they’re all (or are nearly all) going around the Cape. Bulkers have proven to be be vulnerable to attacks from remotely operated speed-boat borne bombs. There have been several more attacks on ships since the bombing of the MV Tutor (which was later abandoned then re-targeted aby armed aggressors who subsequently sunk the vessel) and it appears from specialist media commentary that the drone boats may now even have an onboard guidance system.
So, back to container shipping.
Going around the Cape en mass obviously increases the transit distance and therefore operating costs (fuel mostly, although there are some offsetting savings as operators obviously don’t have to pay Suez Canal fees if they transit the Cape; the Suez Canal Authority is now offering discounts)) which is aggravated by the higher costs of daily charter rates (see above) which takes capacity out the market thereby driving up freight rates. Carriers have to charter more vessels in an attempt to cover the gaps in service caused by longer transit times, which obviously drives up charter rates. There’s also been a shortage of boxes to cope. It should be noted that the capacity shortage follows on the heels of huge deliveries into the industry of new boxes and ships but, as global forwarder DHL notes, “monthly deliveries remain high but are all absorbed due to the Red Sea Situation”.
The delays and complexity are causing gaps, holes, and disruption to container shipping schedules all over the globe and this is causing build-up of boxes and delays at trans-shipment hubs – Singapore, Tanjung Pelepas, Port Klang and Rotterdam (Europe) are being hit particularly by vessel bunching – and this port congestion is compounding problems all over the world. As ships and boxes get stuck in port congestion it cuts capacity and causes shippers to offer more to ensure that their cargo is carried, thereby driving up freight rates.
That said, despite the congestion, both DHL and international analyst Sea-Intelligence are reporting that global schedule reliability is actually rising at the moment, although they don’t explain why.
Another major driver for the current situation is demand. DHL is reporting that the major and minor trades on both the front-haul and the back-haul are experiencing an increase in volumes. For instance, the Asia-Oceania (front-haul) is up by about 3% to stand at 3.0 million TEU while the Oceania-Asia (back-haul) is up 1.1% to stand at 1.6m TEU. This demand increase may be due to generally stronger cargo growth – the World Trade Organization has noted a one percent uptick in volume of trade: “Merchandise trade as measured by the average of exports and imports was up 1.0% in the first quarter compared to the previous quarter. Trade in the first quarter was also up 1.4% compared to the same period in 2023… if the current pace of expansion continues through the end of this year, trade volume for the whole of 2024 will be 2.7% higher than in 2023. Meanwhile, the US dollar value of world merchandise trade was down 2% year-on-year in the first quarter of 2024. The fact that trade values were declining while trade volumes were rising indicates that export and import prices were falling during this period,” the WTO notes.
DHL reports that freight demand is exceeding capacity on all routes out of Asia to anywhere and everywhere in the world, and from the Eastern-Med to elsewhere in Europe. There is a mix of balanced minor trades, and a few trades in which capacity is greater than demand. DHL reckons that Oceania-Asia is currently experiencing a situation in which demand is less than capacity.
The surge in demand may also be driven by panicked shippers front-loading their supply chains ahead of the traditionally busy season in the run-up to Christmas; certainly, there’s a lot of advice out there to shippers urging front-loading. And, of course, there’s equally strident advice out there urging shippers not to press the panic button and not to front-load imports on the grounds that front-loading is exacerbating the demand-supply mis-match.
We also understand from broker and analyst reports that “aggressive” export activity in various regions of the world is contributing to the surge in demand.
Outlook
So, what’s the outlook? Well, if the Red Sea situation does not resolve, if demand continues high, if trans-shipment port congestion continues, and if shippers keep mashing the panic button and front-loading imports then, as Xeneta opines: “spot rates will continue to climb”. That’s a view that’s somewhat backed up by DHL which does not foresee the congestion situation becoming any better anytime soon. Meanwhile, trade media are reporting that container futures trading has seen double-digit gains (17% to 27%) through to early 2025 based on 8,000 to 15,000 daily contract trades. This tends to indicate the the traders engaged in the containerised futures markets believe that the situation will continue into next year.
