Shippers will have breathed at least a little sigh of relief this last week as the increases in box freight spot rates have stalled.
First up: the Shanghai Containerised Freight Index (SCFI), which is the freight rates out of, er, Shanghai (China) to about 12 regions around the world with data supplied by 23 carriers and 26 freight forwarders. It’s a head-haul route. The SCFI recorded a rise of about 19.48 points between early July and the end of June, which was about a 0.52% index point rise. Flat, basically. The index stood at 3733.80 index points as of 05 July, which is nonetheless, a considerable increase as of the end of 2023 when it was at about, roughly, 1,000 points. So the head-haul route out of China has basically risen by about 3.7 times over the last six months or so. As ever, details will vary by trade.
Shanghai also publishes the China Import Containerized Freight Index (CICFI) which tracks box-freight rates on the back-haul into China, specifically into, yes, you guessed it, Shanghai. The CICFI tracks 12 trade lanes into Chyna, er, sorry, China, by 15 carriers. This too has stalled with the overall CICFI index dropping by 1.5% to stand at 812.46 index points. Details vary by route with the biggest faller being the South Africa-China at -6.5% and the biggest gainer West-East Africa Service at plus 4.8%. The Asia-New Zealand route (i.e. our export route to China) was flat at 0.2%. In, roughly, July last year, the general CICFI stood at just under 1300 points.
With a quick hop, skip, and a jump, and we can head over Hangzhou Bay to Ningbo, and the Ningbo Containerized Freight Index is also reporting what appears to be a stall in freight rate rises. Ningbo reports a 1.7% decline overall to 2855.8 points, noting that four of the selected 21 one routes continue upwards, one has remained steady, and the other sixteen have fallen. Overall: flat.
We won’t go into much detail here, but Drewry (leading international shipping consultants) publishes a world container index and that too was flat with Drewry reporting that rates had inched up by 1% to USD$5,901 per 40 foot container. That headline figure is about 43% below the pandemic peak of USD$10,377 (recorded in September 2021). As in line with the other indices, some routes experienced increases in freight rates, some were stable, others declined. “Drewry expects freight rates to remain high until the end of the peak season,” the advisory group said.
Looking slightly forward… and it’s not good
As for next week, well… there’s a bit of a factor that might have upwards pricing pressure on freight rates. There has been remarkably bad weather off the Cape of Good Hope (South Africa) and pretty much all of the Asia-Europe / Europe-Asia route container ships were sailing around the Cape. Or, at least, they were. Bad weather has caused a temporary stop to box ship movements around the Cape.
According to research quoted in trade media, earlier this week there was a halt to traffic past the Cape of Good Hope, with ships holding off around Durban (on the north-eastern side of South Africa, roughly 1,300km distant from the most southerly part of South Africa), since Monday with waves reported as being up to 10 metres in height. A quick check with Earth Nullschool, which reports daily global weather data as recorded by the U.S National Aeronautics and Space Administration (NASA) show some horrendous weather off the coast of South Africa. According to the Earth Nullschool data reported today (Friday 12 July) winds are at 65 km/hour, there are waves 6.2m metres high, and currents are running in excess of 2.1 m/second.
Captain Melwyn Noronha, CEO of Shipping Australia, commented, “having traversed that part of the world numerous times, if I had been facing such weather conditions, then, I as a former ship master, would have slowed down my vessel drastically and would have delayed until the weather abated, however long that may take. Back when I was a commercial mariner, we repeatedly did this and seriously altered our passage plans to avoid such systems until they dissipated or moved away. Protection of life at sea, the marine environment, and the property of shippers must always take priority”.
Logistics software provider Flexport has recently advised that vessels have since begun transiting around the Cape as weather is now beginning to abate. However, there is an extra delay of 24-48 hours “and some vessel bunching may occur”.
Other developments
On the plus side, Panama Canal water levels are improving, Drewry notes, which is allowing the Canal Authority to relax transit restrictions. Average daily transits through Panama rose to 29 in June, up from 26 in May. That said, as Simon Heaney of Drewry notes: “there is still some way to go before transits are back to normal levels. Total transits in June 2024 were down 16% YoY, equal to 164 fewer ship passages”. He adds that the maximum draft for vessels transiting the NeoPanamax locks is 48 feet. Every foot is vital; the rough industry estimate is that every foot of draught is worth about 350 TEU of capacity. Global liner shipping is just that: global. A major upset or disruption at a vital waterway, like the Panama Canal, affects liner shipping worldwide, typically by reducing capacity and thereby putting upwards pressure on where the supply/demand equilibrium point will settle.
Turning now to the ongoing disaster in the Middle East and the consequent crisis in the Red Sea. There is … possibly … news that there maybe could perhaps be framework that might lead to a ceasefire. You’ll note the conditional qualifiers in the previous sentence. In the last few days, there have been a variety of news reports about hopes of some kind of ceasefire agreement being possible. That said, there have been reports of threats to end the ceasefire negotiations, gaps in the negotiations, and claims of stalling in the negotiations. These conflict-related matters are outside of the scope of Shipping Australia’s comments, however, liner analyst Linerlytica noted that the Container Freight Index Futures (Shanghai Exchange) declined on the news. We cannot comment on whether there is, or is not, going to be something approaching a ceasefire, but, if there is, and if container shipping companies again brave the Red Sea, then we would envisage that there would be downwards pressure on freight rates.
Charter, newbuild, second-hand, and scrapping markets
Freight rates fundamentally drive the container charter markets, the market for the scrapping of ships, the sale and purchase markets, and the market for building new ships. Simply put, high freights tend to cause the demolition markets to dry up and the newbuild markets to spring into life as ship owners keep old ships in service just that little bit longer and seek to get new tonnage into the market. And that’s exactly what’s happening now. One demolition broker described one of the regional scrap markets – and we’re not exaggerating here, this is a direct quote, as: “Another ZZZZ session”.
Meanwhile, on the newbuild front, MB Shipbroker notes that another 264,000 TEU worth of boxship has been added to the sectoral orderbook, “supporting a strengthening container newbuilding sentiment… the intensifying activity is now extending to the largest container sizes, where we understand Korean yards are in talks for a series of 24,000 TEU LNG DF vessels” [that’s broker-ese for boxships that can handle 24,000 twenty foot containers and which are fuelled by liquefied natural gas and will have a dual fuel option; you’re welcome.]
There are few second hand sales at the moment, MB Shipbrokers reports, and that’s likely because carriers are desperate to keep and acquire tonnage and would be most unlikely to sell anything at all if they can possibly avoid it in today’s high freight rate market.
Charter markets as you might expect are zooming upwards. A boxship of 2,400 TEU to 2,700 TEU back in 2019 was going for about USD10,050 / day, in 2024 it’s going for about USD$18,960 / day, MB Shipbrokers reckon. This is all playing into the hands of ship owners with tonnage to offer (remember: the ownership and operation of a good chunk of the box fleet is completely separate – there are companies that buy ships and promptly charter them out to other companies that operate them). The Hamburg Shipbrokers Association (Verband Hamburger und Bremer Shiffsmakler) is recording small week-on-week changes that compound into big month-on-month changes and absolutely huge year-on-year changes for all the size categories it monitors.
“The supply of vessels available for the remainder of this year tightens further day by day, liner operators are showing increasing interest in next year’s positions. On another note, especially owners who are willing to consider shorter-term period commitments of 6 months or even shorter, are able to demand very decent premiums,” the Hamburg Association says. The biggest gainers of the year have been the 2,700 TEU ships on 12 month deals which are 84.6% up on a year ago. There are few ships in the 80% plus increase bracket and nearly all of the rest are 50% plus up, except for the smaller 1,100 TEU feeder vessels.
One more thing
Incidentally, on a final note, we’ve recently heard some shipper commentary, stridently arguing that the current situation indicates that there is manipulation and gouging in international shipping.
Look, we understand the frustration with the current market.
But, if you’re of that opinion, we urge you to read the commentary above and reflect on how having ships deviate all the way around Africa to avoid being blown up and to keep their crews safe from being murdered by terrorists might be a justifiable deviation from business as usual and how that might cause a series of cascading cost increases across the supply chain.
We all need to extend our awareness to global matters and our compassion to innocent people – such as seafarers – who quite reasonably don’t want to put themselves in front of an actual, real, and deadly risk of harm.
