It appears increasingly likely that the main east-west container trades have now entered an early peak season – which, combined with disruptions such as equipment shortages, port congestion and schedule volatility, has caused the recent spike in spot rates.
There were tentative signs this week, however, that the pressure might be easing.
After three weeks of consecutive double-digit rate increases, this week saw low-to-mid single-digit rises, indicating that the upward spiral has begun to taper off.
Both the Drewry World Container Index’s (WCI) Shanghai-Rotterdam leg and Xeneta XSI’s Asia-North Europe saw spot rates rise 5%, to $5,270 per 40ft and $5,280 per 40ft respectively, while on the transpacific, the WCI’s Shanghai-Los Angeles leg was up 2%, to $5,390, and the XSI rose 4.5%, to $5,170.
“The current spot rally on Asia-North Europe will start to reverse in June, while the transpacific will stabilise or soften in the second half of 2024,” predicted Drewry senior manager of container research Simon Heaney in the company’s Freight Loop briefing
Xeneta’s head analyst, Peter Sand, agreed that this week’s market may appear a silver lining, but warned that some shippers could continue to encounter supply chain issues.
“While average spot rates will increase again on 1 June, the growth is not as rapid as it was during May, which may hint towards a slight easing in the situation,” he said.
“This cannot come soon enough for shippers who are already having their cargo rolled – even for containers being moved on long-term contracts signed only a matter of weeks ago.
“Carriers will prioritise shippers paying the highest rates. That means cargo belonging to shippers paying lower rates on long-term contracts is at risk of being left at the port. It happened during the Covid-19 pandemic, and it is happening again now.
“We are also seeing freight forwarders being hit with new surcharges and being pushed onto premium services to have space guaranteed onboard ships. In such cases they have no other option than to pass these costs on directly to their customers.”
And he added: “Carriers will continue to push for higher and higher freight rates, so the situation may get worse for shippers before it gets better.”
Shipment delays in Singapore have more than doubled, hit by a shortage of ships and containers, and congestion at ports. This could translate into higher prices for consumers, amid an impending supply chain crisis. One analyst says some sectors in Singapore are expected to come off worse from container and ship shortages. These include firms in the manufacturing industry, especially those involved in producing heavy goods, like consumer electronics or electric vehicles. Nasyrah Rohim and Charlotte Lim report.
The sense of genuine anger amongst North European shippers and freight forwarders was palpable this week as they struggled to digest rapidly escalating spot freight rates.
The ascent steepened over recent weeks, with Drewry’s WCI Shanghai-Rotterdam leg rising 20% week-on-week to finish at $4,999 per 40ft.
However, sources told The Loadstar that slots were being purchased at much higher levels.
“Real terms rates for spot are in the $6,000-$7,500 mark, with carriers saying they will hit $10,000.”
Tight vessel supply is continuing to combine with high demand in trunk trades and has led to a worsening shortage of containers at key export hubs in Asia, as The Loadstar reported earlier this week, and which is now having a significant impact on secondary trades.
But carriers’ preference to carry higher paying spot cargo over contracted volumes is infuriating many customers.
One European import manager suggested the recent hikes would likely force it to suspend shipments once its current bookings are completed.
“The carriers don’t honour anything but their profits – we’re loading/shipping out the stock that’s currently on production lines, then we will cease again, and we’ve already informed our suppliers and partners.
The European Commission (EC) approved a scheme for 1.7 billion euros to support single wagonload and wagon group transport in Germany until 2029. “The maximum annual budget amounts to €320 million”, the EC specified. The measure aims at ensuring that these types of transport and the companies operating them do not cease to exist due to their economic struggles.
Wagon group transport is defined as trains that keep “the same composition from the origin to the destination and is eligible under the scheme for journeys up to a maximum distance of 300 km if operated by short block trains with up to 15 wagons”. This is not a very profitable segment, as it deals with lower number of wagons and shorter distances.
Single wagonload is not profitable as it includes various switching and shunting procedures, which increase costs. For this specific sector, the German government already approved 300 million euros in its budget for the 2024-2027 period. However, concerns remained as some members of the industry say that single wagonload needs more support.
Container spot rates have continued their upward trajectory on the trunk east-west trades with double digit week-on-week gains on the Asia-Europe and Asia-North America routes.
Drewry’s World Container Index (WCI) recorded 12% week-on-week increases on Shanghai-Rotterdam, Shanghai-Los Angeles and Shanghai-New York legs, which respectively finished the week at $4,172, $4,476 and $5,717 per 40ft.
“Drewry expects ex-China freight rates to rise due to increased demand, tight capacity, and the need to reposition empty containers,” the analyst said.
The WCI recorded an 11% increase in Shanghai-Genoa, to $4,776 per 40ft. Freightos’ FBX Asia-Mediterranean leg recorded a 17% increase on the leg to $5,179 per 40ft.
“Ex-Asia ocean rates climbed sharply last week as early month GRIs took hold – with additional significant increases possible in the coming days from mid-month GRIs and surcharges – as unseasonal increases in demand combine with already-stretched capacity due to Red Sea diversions that require the use of more ships and are still causing congestion in places like the West Mediterranean and South Asia,” Freightos head analyst Judah Levine said.
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Shipping’s response to the Red Sea crisis is to reduce capacity to an extent far exceeding expectations, leading to a situation in Europe for Asia-Mediterranean traffic not seen since the pandemic, according to some analysts.
According to Xeneta, new transhipment networks, meant to reduce the impact of Red Sea diversions, are instead adding to it by creating congestion. Deploying more smaller vessels has contributed to an increase in wait times.
The Loadstar recently reported that carrier giants such as Cosco and Evergreen were redeploying tonnage purpose-built for the Far East-North Europe trades to the Mediterranean in the hope of stemming under-capacity there.
“If we focus on the first 14 weeks of 2024, capacity on Asia-Med is up by 8% year on year already, whereas it’s down 3.1% on Asia-North Europe,” Xeneta’s Peter Sand told The Loadstar recently.
“West Med transhipment ports are as busy as ever, and may already be exceeding peak productivity levels,” he continued. “The port of Barcelona handled 48% more transhipment teu in Q1 24 than last year. According to Xeneta data, we can clearly see the attractiveness of this trade, from a carrier perspective.”
The additional attention is having a knock-on effect on wait times, which at Barcelona have increased to 3.53 days. According to Xeneta’s short-term market averages, rates from Singapore to Barcelona were climbing again, from a lull in March, up 10% at the beginning of this month, close to levels last seen at the outset of Red Sea diversions in January.
A customer note from a UK forwarder last week gave a dire indictment of the current scenario. It said: “With demand higher than forecasted, there is a realisation we have entered an extremely challenging period, not seen since the dark days of the pandemic. We anticipate this is likely to continue into Q3, where there may be some respite from new capacity coming into the market.”
The Kwai Tsing Container Terminal in Hong Kong, formerly the world's foremost port in terms of throughput, slipped out of the prestigious top ten rankings in 2023, settling for the eleventh spot. While it remains operational and not yet deemed a "ruin," its decline bears an uncanny resemblance to the relentless spread of "desertification," evident through its falling rankings, diminishing utility, and waning competitiveness. A comprehensive analysis conducted by HK01 delved into the underlying factors contributing to the terminal's downturn, exploring the prospects of a potential resurgence.
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