The security situation in the Middle East appears to be generally worsening – more ships are being attacked, the severity of the attacks are increasing (see ICS bulletin). In mid-to-late July, a small product tanker, the Prestige Falcon, was attacked, leading to at least six mariners being missing, one dead and the other nine being rescued.
Shortly thereafter a Houthi drone attack hit Tel Aviv on 19 July, which led to retaliatory strikes from Israel attacking Hodeida seaport in western Yemen, just north of the Bab-El-Mandeb – the 28km wide strait between Africa and Arabia.
Subsequently, and while this is not strictly shipping related, at the end of July, Israel attacked targets in Lebanon and killed a Hezbollah senior commander. A senior Hamas leader was then recently assassinated in Tehran, Iran. Iran has since vowed to retaliate.
“From a shipping perspective, a full-on war between Israel and Iran would further increase the risk area to take in not just the Strait of Hormuz but essentially any shipping related interests in the Gulf area seen by Iran to be Israeli-affiliated. It should in such a case also be expected that the Iranian proxies, notable the Houthies and Hezbollah, could step up their actions, further increasing the risk area to the very eastern parts of the Mediterranean within Hezbollah’s reach… direct actions using aerial assets between Israel and Iran overflies Syria and Iraq and potentially Jordan as well. This increases the risk for a further spread of a potential conflict,” international container shipping analyst Lars Jensen of Vespucci Marine has written.
Global Port Congestion
Owing to the Red Sea Crisis, container shipping is stretched thin – and that’s despite about 2.3 million TEUs worth of new tonnage delivered last year and a further 1.7m TEU added to the fleet this year, according to trade media. The fleet is currently larger than 30m TEU; global freight forwarder DHL is forecasting about 31m TEU by the end of 2024 and just over 32m TEU by the end of 2025. A “TEU” is equivalent to one box of twenty feet in length. Because deviating around the southern tip of Africa is such a huge distance, a large volume of capacity has been eaten-up by the transit distance and time.
The other big eater of capacity is port congestion.
Ports are congested both because of current high demand and because of the disruption caused to shipping schedules by the Red Sea Crisis.
Global port congestion remains high even after improvements in Southeast Asia; cargoes etc have been diverted away from Singapore and Port Klang to other regional ports, Laem Chabang in Thailand, which has led to increased congestion in those other regions.
Congestion is being reported around the world as ranging from 3.6 days (Los Angeles, USA), through 6 days (Ningbo-Zhoushan, China – a major world container port complex); and up to eight days at Durban, South Africa.
Other disruption
Incidentally, bad weather can cause global container shipping to slow down or delay. The recent bad weather off the coast of South Africa – which is now a bit of a chokepoint as it is now the route by which much of the global container fleet is using – has caused a ripple effect in various container ports around the world, further worsening global congestion.
Various analysts are also referring to actual and potential strikes at ports in Europe, namely southern Italy, Germany, and France. Meanwhile, in South Asia, two of the main ports – Nhava Sheva and Mundra – are congested owing to heavy rainfall, high volumes, and bunched-up vessels. There is ongoing political protest in Bangladesh which is contributing to backlog in-country.
Freight Rates
Drewry Supply Chain Advisors are a world-renowned maritime advisory firm. They produce a widely followed weekly index and it has decreased by a small percent for the second week running. It now stands (as of 01 August 2024) at USD$5,736 for a forty-foot box, down from a recent peak in mid-July 2024 of USD$5,937for a forty foot box. This early August figure is about 45% below the pandemic peak of USD$10,377 for a forty-foot box which was seen in September 2021. Bear in mind that different trade routes will have different prices. Freight rates from Shanghai to a variety of destinations have also generally decreased by a percentage point or two, although some backhaul routes have risen. Drewry believes that the spot rates have peaked, but continued shipping disruption will put a floor under the spot rates for some time.
And, on that note, it us worth noting the comments by Philip Damas, head of the Supply Chain Advisors Practice & Managing Director at Drewry. Mr Damas notes that contract rates are still 9% lower than a year ago and that long-term contract shippers are benefiting from lower volatility than spot rates. He notes that Drewry’s East-West Contract Rate Index has shown an increase of 9% over 4.5 years but spot rates have increased by three times over the same period.
“Contract shippers are not paying the level of prices of spot rates: contract rates are currently less than a third of what a spot shipper would pay,” he writes, adding that these numbers: “do not confirm the view that shipping is contributing to inflation, as discussed in the media. Some small shippers without contracts and larger shippers who exceed their agreed contractual volume do have to pay more, but those are the exceptions, not the rule. In my opinion, the media and economists pay too much attention to spot rates and not enough to contract rates in shipping”.
Still, for those shippers who are on the spot rate, it is a bit tough at the moment. On the Oceania routes specifically, it might be very difficult. The Ningbo Containerized Freight Index Weekly Commentary (issued July 26 i.e. last week) reports on the fluctuating spot rates by examining freight rates on 21 routes departing from Ningbo-Zhoushan, China. On the Ningbo to Australia route (Melbourne / Brisbane / Sydney) the compilers of the Ningbo-Zhoushan index note that the “supply of space is tight” and the freight rate has increased “significantly,” having risen by about 17.9% to stand at 2,447.3 points when compared to the previous week.
Global freight forwarder DHL reckons that there are likely to be continued rate increases on secondary trades and specifically mentions Oceania as its example.
In its latest outlook, DHL reckons that rates are generally stabilising at high levels and will likely remain high owing to ongoing shortages of empty equipment, strong demand, and port congestion. until early October. DHL further adds that freight rates are anticipated to stay high until the end of the peak season until the end of Golden Week.
China celebrates the establishment of the People’s Republic of China on 01 October and the national holiday, Golden Week, runs for seven or eight days.
International container analyst Sea-Intelligence notes that global schedule reliability of container shipping has dropped by 1.2 percentage points from the previous month to stand at 54.4%. “This is keeping in line with the trends seen so far in 2024, where global schedule reliability has been within 50%-55%,” reports Alan Murphy, CEO, of Sea-Intelligence.
Demand side
Demand for services has been high, due to shippers front-loading as a precaution against ongoing disruption in the global shipping industry and also trying to beat the introduction of U.S. tariffs. DHL believes demand will remain high through quarter three (July-Sept) this year.
Demand is forecast by DHL to be greater than capacity on all intra-Asia trades, and all trades ex-Asia to the rest of the world, and that includes Oceania. The box-trades to / from Asia account for about 67% of all Australia’s box trade (includes both import and export boxes). So, the forecast that Oceania rates will remain high (see above) and that demand will continue to exceed capacity is significant. That said, on the backhaul trade i.e. Oceania to Asia, DHL is forecasting that demand will be less than capacity.
