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Freight rates extend rally on severe port congestion in Asia

by Elif Şahinduran -
by Esra Ersöz -
  • 10/06/2024 (12:21)
Having returned to their January peaks in late May, freight rates extended the rally to another week in early June, almost reaching their highest levels since September 2021. Routes from China continue to lead the recent rally as port congestion in major Asian ports particularly in Singapore has reached critical levels.

According to Drewry , the world container index increased by 12% to $4,716 per 40ft container this past week and rose by 181% when compared with the same week last year. Since early May, Drewry’s composite index has gained a total of 60%.

The cumulative gains in routes from China were much larger with the route to Northwest Europe posting a 94% increase to $6,032 per 40 ft container while South Europe gained around 80% to reach $6,664. When it comes to the routes to the US, the west coast soared by 77% to see $5,975 this past week and the east coast by 64% to $7,214 per 40 ft container.

Drewry – Freight – container - index

Bottlenecks in Asian ports lead to congestion

Reduced capacity caused by blank sailings, unpredictable schedules and increasing delivery times caused by rerouting have led to a heavy port congestion in Asia, especially in Singapore. Available goods are dumped at certain ports as many carriers rerouted their shipments amid the ongoing Red Sea crisis, which led to congestion in ports such as China’s Shanghai-Ningbo, Malaysia’s Port Klang and Singapore. Bloomberg , argues that these ports receive much more ship flow than usual, with Singapore recording an 8.8% increase in container volumes in January-April period compared to previous year. As a result, the heavy congestion has led to even longer delays for shipments.

According to Linerlytica , a shipping consultancy, congestion at the world’s second largest container port, Singapore, hit critical levels in late May with berthing delays reaching 7 days. This pushed some carriers to omit their planned Singapore port calls around ten days ago, while the recent reports show the tension, albeit remaining elevated, has slightly eased.

In the meantime, other Asian ports continue to tackle with worsening congestion as Malaysia’s Port Klang and Tanjung Pelepas are still experiencing a heavy workload. Main Chinese ports, namely Shanghai and Qingdao, are also experiencing the longest delays. Ships have had to wait for up to five days to dock at the busiest port in the world, Shanghai, where congestion levels have peaked to their highest since the onset of the Covid pandemic, reports Linerlytica.

Not only Asian ports, but also the UAE’s Jebel Ali grapples with congestion quandaries, owing to its strategic location adjacent to the Red Sea and its pivotal role to move goods through Dubai by both sea and air, according to Bloomberg.

Peak season arriving early for the shipping industry also contributed to the congestion. Market participants believe that the peak season, which would normally start later, has already arrived following the recent bottlenecks.

 ports – congestion – Jebel Ali – Shanghai – Singapore - linerlytica

Peak season arrives early; a bull market seems here to stay

Concerns over a capacity shortage amid rerouting and blank sailings, growing congestion at certain ports, rising demand from Europe and the US, and China’s solid exports led to peak season for the shipping industry arriving early. Global freight indexes are extending their increases week after week, and it seems that the upward trajectory will be sustained for a while.

The expected tariff increases and trade barrier concerns for China, especially in case of a Trump re-election in November, is also straining the industry. Chinese exporters have been flooding the Western bloc with much cheaper goods in fear of losing their market share, causing the peak season to arrive early for the shipping industry. Indeed, China’s May exports grew visibly by 7.6% on a yearly basis following the 1.5% rise in April, also beating expectations despite the ongoing trade tensions. This confirms the big appetite of Chinese exporters for shipping containers.
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