Freight rally falters; have shipping rates reached a peak?

Ocean freight rates have eased down recently, after almost two months of upswing driven by the ongoing tension at the Red Sea that pushed spot prices to their highest levels in more than a year.

As the Chinese New Year was approaching, increasing demand for shipments from Asia had led to a shortage of vessels, adding to the already bullish prices. However, demand has subsided going into the holiday week and helped easing shortages, lifting the demand pressure from carriers’ shoulders.

Following cumulative increases of around 140-150% from mid-December to late-January, global benchmarks for container shipping rates softened this past week for the first time since November. Freightos suggests a weekly decline of 1% for its global index to $3393/FEU while Drewry’s composite index decreased by 4% to $3824 per 40ft container.

Rates from Asia to Europe see the largest drops

Having first triggered the global uptrend, spot freight rates from Asia to West and South Europe saw relatively larger decreases than the rest of the world.

Freightos data showed that China/East Asia to North Europe route decreased by 7% to stand at $5097 per feu as of February 2. The Mediterranean route also saw a decline of 8% in the past two weeks to stand at $6212.

Likewise, Drewry’s freight rates for Shanghai to Genoa index decreased by 8% to $5848 per 40ft container while Shanghai to Rotterdam fell by 6% to $4661 per feu.

China-US routes sustain bullish tone, but price hikes slow down

Unlike the rates from Asia to Europe, spot prices for the China-US routes continued their weekly climb albeit at a slower pace. Although they are non-Red Sea routes, they have followed the global trend and posted sharp increases since early January.

According to Freightos, cumulative increases since late December have reached 155-160% with the latest index for China/East Asia - North America West Coast standing at $4367/FEU while the index for the East Coast rose to $6372/FEU this past week.

Drewry’s cumulative index for the same routes showed a relatively smaller increase of around 120-125% in the same timeframe with the latest index standing at $4421/FEU for the West Coast and $6165/FEU for the East Coast.

This steady increase in these routes is mainly attributed to the rising demand for shipments from China ahead of the holidays in the region. Although the holiday lull is now kicking in, spot rates maintained their increases as carriers continued to apply surcharges onto their container prices, to make up for the profit they lost due to rising costs, argued industry sources.

Have freight rates reached a ceiling?

According to some analysts, the worst part of the crisis has been left behind, and now the industry will experience stabilization going forward.

“Rates are much higher than pre-crisis, because the longer routes will soak up large amounts of capacity and carry extra cost, but I expect the spike in spot rates to abate somewhat,” said an advisor from Vespucci Maritime’s. “After CNY, not only will there be a drop in demand, but vessels and equipment flows will begin to get back in sync from their revised Cape of Good Hope routings,” he added.

Similarly, a Freigthos analyst argued that there is currently tight space and equipment at Asian export hubs, but congestion remains minimal, and there are signs space and equipment availability may already be improving.

Although the shipping industry is on a highly volatile note due to the Red Sea crisis not being fully averted, most agree that the large hikes seen for the previous weeks will not be repeated in the upcoming weeks, given that holiday lull will continue to cast a shadow on demand across Asia. “We may see rates begin to flatten or decline sooner than many anticipated in February,” a market analyst from Xeneta stated.