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Freight crisis subsides ahead of slow season

by Ayşe Vildan Cansız - acansiz@chemorbis.com
by Esra Ersöz - eersoz@chemorbis.com
  • 12/03/2024 (01:51)
Having skyrocketed in January, global ocean freight rates have been decreasing since then. Although the Red Sea crisis is here to stay, carriers appear to have adapted to the new normal. Approaching low season as well as the recent news that Panama Canal authority has decided to increase the number of daily slots has also helped alley the concerns.

Chinese New Year weighed on demand

The precipitous climb ended in around late January and freight rates started a cool-off period amid faltering demand due to Chinese New Year holidays that took the steam off shipping activities. Demand also failed to stage a meaningful recovery following the holidays.

Moreover, carriers have been able to manage their shipments via additional capacities, optimizing their operations though the longer route around Africa.

Global indexes down by 10-14% since early February

Freightos data showed that global container freight index decreased by 7% from last week to stand at $3,070/feu as of March 11, following a three-week downtrend. This brough the cumulative drops to 10% since February.

Drewry composite index decreased more by 14% in the last six weeks to stand at $3,287 per 40ft container as of March 11. Meanwhile, the composite index is still %82 higher when compared to the same week of the previous year.

China-Europe routes suffer the biggest losses

The decreases are more visible in China-Europe routes since spot freight rates more than quadrupled during the upturn between December and February. The recent cumulative losses in the past 6 weeks are therefore quite minimal compared to the previous gains.

The latest Freightos data showed that China/East Asia to North Europe route decreased by 4% to stand at $4,312 per feu as of March 11. The Mediterranean route was also down by 10% from the previous week to stand at $4,479. Cumulative decreases for these routes from their peak in January reached around 21% for North Europe and 34% for Mediterranean.

Drewry’s latest freight rates for Shanghai to Genoa index also decreased by 6% to $4,449 per 40ft box while Shanghai to Rotterdam fell by 7% or $294 to $3,650 per feu as of March 11. The cumulative decrease in the past six weeks reached 30% for the Shanghai-Genoa route and 27% for the Shanghai-Rotterdam route.

China-US routes shift down as of mid-February

Spot prices for the China-US routes shifted direction as of mid-February. The cumulative gains were relatively smaller in China-US routes during the upswing. Hence, the slump arrived later at a slower pace.

According to Freightos, latest index for China/East Asia - North America West Coast decreased by 7% to stand at $4,419/FEU while the index for the East Coast was also down by 8% to $6,107/FEU as of March 11. Freightos data showed that rates on these routes decreased for the past three weeks, and cumulative drops reached 9.6% for West Coast and East Coast.

Drewry’s data for the same routes also showed a reversal with indexes standing at $4,272/FEU for the West Coast and $5,458/FEU for the East Coast. These levels pointed to weekly decreases of 5% and 6% respectively. Cumulative decreases in the past three weeks were 12% for East Coast and 10% for West Coast.

Attacks continue, first casualties in the Red Sea

Houthi attacks in the Red Sea continued to rattle global shipping industry with the Houthis sinking a UK-owned commercial vessel on March 3 with the sunken vessel posing a threat to other vessels passing though the region. Moreover, a joint effort by US, British and French forces fought back a serious of attacks by the Houthis, resulting in three seafarers losing their lives in the process, marking the first casualties of the crisis.

These recent developments contributed to expectations of seeing the Red Sea turmoil continue for the upcoming term. Indeed, “Logistic disruptions caused by the recent crisis in the Red Sea may continue into the second half of 2024,” Charles van der Steene, regional president for Maersk North America, stated to CNBC.

Will downtrend continue in shipping rates?

Despite the ongoing turmoil, industry experts generally agree that freight rate increases and surcharges applied particularly in January were exaggerated, blowing past expectations given the growing uncertainty and urgency to act at the time. Therefore, they will have to come down from those highs.

Considering the overcapacity in the industry, the approaching slow season for ocean shipping and additional daily slots in Panama Canal have also been underpinning the further decreases to come in freight rates.

However, a steep nosedive in freight rates does not seem likely, either, differing from the case of price hikes. Erasing the previous gains and going back to December lows may not happen as fast as prices climbed to their highest of previous years.
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