Freight rally continues unabated as H2 starts

The price rally in container shipping markets has been going on without taking a pause since May amid ongoing disruptions in supply chains. Hovering around the highest levels of almost two years, in the pandemic-era price territory, many players are now widely looking for a clue about how high shipping freight rate hikes may go from here.

Drewry’s world container index nears $6000, Freightos just breaches $5000

According to Drewry , the world container index increased 10% to $5868 per 40ft container last week and has increased 298% when compared with the same week the previous year.

The latest index suggests levels not seen since August 25, 2022. Since early May, when the rally roared back after steadily falling between February and late April, the world container index has risen by 84%. Meanwhile, the index has increased by 284% since December 2023, when the Red Sea crisis began.

Freightos , another benchmark for container shipping, also raised its global index by 11% this past week to $5022 per 40ft container. Although it has also doubled since May, it stands relatively below Drewry.

Is the $8000-9000 range new norm for China-US and China-Europe routes?

Needless to say, routes from China remain as the main driver behind this shipping rally, showing much bigger cumulative gains. Drewry’s China to Northwest Europe route posted a 124% increase since May to stand at $8056 per 40 ft container this past week, while South Europe rose by 93% to reach $7573. Meanwhile, the gains in the routes from China to the US reached 101% to see $7472 for the West Coast and 89% to $9158 per 40 ft container for the East Coast.

According to Freightos, rates for West Europe rose by 18% this past week to $8400 and 8% for South Europe to $7783 per 40 ft container while the US saw at $7930 for the West Coast and $8897 for the East Coast per 40 ft container.

Perfect storm brewing

Supply chain disruptions started in December, not to mention, with the Red Sea crisis and reduced capacity due to blank sailings. After May, this was accompanied by stronger-than-expected demand in Europe and the US for Chinese goods. Additionally, stronger exports by China due to expected tariff increases played a leading role in the recent rally, all creating a perfect storm of severe congestion in ports, mainly in Asia, delays in cargo shipments and increased costs.

How far will prices climb?

The persistent increase in freight rates has raised two questions: How long will this rally continue? To what extent will the rates increase? Industry experts believe that the logistical situation cannot be resolved in the near future. The container rates have recently climbed back to “price territory of the pandemic era” and the rally is highly likely to extend into the second half of the year.

Although recent supply-chain challenges like congestion, delays, disruptions, rerouting, and price spikes resemble the pandemic era and some industry sources argue that pandemic peaks are the limit for the ongoing rally, Thomas Black, a Bloomberg Opinion columnist believes that the rally in freight rates is “no pandemic flashback.” According to Black, “Even though some of the descriptions are the same, this recent bout of congestion and surge in container prices is much different from the snags during the pandemic.”

Some experts believe that the recent issues can be solved by utilizing the available capacity efficiently and adding more. Nonetheless, ocean carriers might use the recent wave of increases to apply larger surcharges, keeping the rally alive for a longer period, Black said.