Alarm bells are ringing about a downturn in freight markets

Freight rates, which surged by an impressive 86% since early May and even a more whopping 300% since December, have begun to retreat from their peak levels this past week, following a decrease in rates on the China-India route observed in the preceding week.

Container rates in China-India routes, which experienced sharp increases in late June due to severe congestion in Asian ports, retreated in early July , which raised questions of whether the rally will falter in routes from China to Europe and the US as well. The deceleration in Drewry’s world container index, coupled with recent declines in Freightos proved the predictions right.

The rally in Drewry’s container index eases, Freightos declines

According to Drewry , the world container index inched up by 1% to $5,937 per 40ft container last week and has increased 286% when compared with the same week last year.

The world container index has surged by a total of 86% following the rally that commenced in early May. Additionally, since the onset of the Red Sea crisis in December 2023, the index has soared by a remarkable 286%.

Moreover, Freightos’ global index declined by 2.3% this past week to $5060 per 40ft container. “There are signs that prices may have already reached their peak as daily rates so far this week are ticking lower,” said Freightos’ Judah Levine.

First declines in China to the western bloc since May

Rates from China, the main driver behind the rally, have started to stabilize and even experienced reductions over the past week. Drewry’s China to US West Coast route declined by 3% this past week to $7288 per 40 ft container, which is the first time since May. The rates are still 98% higher than in May though. China to US East Coast, on the other hand, increased by 2% this past week and by a total of 91% to $9612 since May. Although the route experienced an increase on a weekly basis, the rate of growth has clearly decelerated.

Drewry’s China to Northwest Europe route stayed stable this past week but posted a 127% increase since May to stand at $8267 per 40 ft container, while South Europe rose only 1% this past week and by 94% since May to reach $7727.

However, according to Freightos, rates from China to West Europe declined by 1.8% this past week to $8474 and by 2.8% for Mediterranean to $7524 per 40 ft container. Rates from China to US were down by 4.4% to $7742 for the West Coast and by less than 1% to $9564 for the East Coast per 40 ft container.

What has triggered the decrease?

The surge in ocean freight container shipping rates appears to be peaking as importers are now able to show some resistance to escalating spot rates given the introduction of additional capacity particularly on the Transpacific route, which allowed prices to soften.

Emily Stausbøll, a Senior Shipping Analyst at Xeneta noted that while some carriers continue to push for higher spot rates in mid-July, others are beginning to lower their rates. “Crucially, this suggests a growing level of available capacity in the market and shippers can once again start to play carriers off against each other - instead of feeling they need to pay whatever price they are offered to secure space. As the balance of negotiating power starts to swing back towards shippers, we should see spot rates start to come back down,” Stausbøll said.

What does the near future hold for the shipping industry?

Looking ahead, Drewry expects ex-China rates to stay steady next week and remain high throughout the peak season. On the other hand, some analysts expect to see further softening on China-US routes.

Even if container shipping markets extend their declines amid easing port congestion and increasing capacity, freight rates are expected to remain elevated in the second half of the year. This is because a return to the Suez Canal seems unlikely, port congestion is set to persist, and shippers continue to face high costs. Plus, shipping companies are expected to add capacity in a quite controlled manner, which will avoid a price slump.

It is also noteworthy that the markets found some relief back in February and April following the spike in December. However, the price slump was not even half-way through the previous rising trend when the market turned back up in May.