Freight rates fall from July peak, but remain elevated

Freight rates, which peaked in mid-July following a conspicuous rally that began in early May, have been declining since then, driven by the slump in ex-China routes. Market experts believe that the downturn will persist; however, freight rates will not fall as swiftly as they rose in the past few months given the ongoing port congestion in Asia and the rest of the world as well as other logistics disruptions. So, the question is: Is there a way to return to the levels seen before the Red-Sea crisis?

Drewry’s index falls for the fourth week, ex-China routes decline the most

According to Drewry , the world container index decreased by 2% to $5,428 per 40ft container last week. Extending their declines into the fourth week, the global index slipped by a cumulative 8% from its peak in mid-July.

Rates from China to US/Europe experience the sharpest drops

Drewry’s China to US West Coast route declined by 3% this past week to $6,303 per 40 ft container, and a total of 18% since mid-July. China to US East Coast also declined by 2% this past week to $8,764 per 40 ft container and recorded a 10% decline since the start of the downward trend.

Drewry’s China to Northwest Europe route was down by 2% this past week and posted a total of 6% decrease since mid-July to stand at $7,756 per 40 ft container, while South Europe declined by 2% this past week and by 7% since mid-July to reach $7,182.



Freightos’ China-US West Coast rates see the largest decrease among ex-China routes

According to Freightos , rates from China to US were mostly stable week over week at $6,429 for the west coast and $9,411 for the east coast per 40 ft container. Following the July 12 peak of $8,101 for the West Coast route, it suggests a 21% decrease while the East Coast rates remain relatively strong with a much smaller decrease of 4% since their peak in late July.

Meanwhile, rates from China to North Europe declined by 1% this past week to $8,264 and by 2% for Mediterranean to $7,322 per 40 ft container. Although both routes are down from their July peaks in the past few weeks, their decrease size is quite minimal.

China-Southeast Asia routes also visibly decrease, particularly to India

Market sources have reported a notable decrease in ocean freight rates from China’s Ningbo port to other Asian ports. Accordingly, shipping costs have decreased by 10% to Ho Chi Minh, Vietnam; 13% to Malaysia; 15% to Jakarta, Indonesia; and 40% to India in the past few weeks as of mid-August. India has particularly seen a much bigger decrease with the recent rates reported at around $2,000 per 40ft container, down from a peak of $4,320 in June, according to PVC players.

Slump in freight rates is not expected to deepen soon; why?

Despite reaching a peak, freight rates are unlikely to experience a swift decline due to ongoing shipping disruptions. While rates have been decreasing since mid-July, the cumulative decline has been relatively limited in the past few weeks. Drewry expects continued shipping disruptions to keep a floor under the spot rates for some time. But what are those shipping disruptions to keep the downturn in check?

Port congestion in Asia continues

China’s Shanghai-Ningbo, Malaysia’s Port Klang, and Singapore’s ports have been experiencing significant congestion from high shipping volumes and operational challenges.

Although wait times at these ports have peaked and are starting to ease, ongoing delays will continue to support elevated spot rates, according to industry experts. Hapag Lloyd’s August 13 update shows waiting times at key Asian ports are ranging from 1 to 4 days, moderating from high levels experienced in July.

Adding to existing congestion issues in the region, a hazardous goods container exploded aboard the cargo ship YM Mobility while it was docked at Ningbo-Zhoushan Port in China on August 9. The explosion led to the closure of the Phase III Terminal for 60 hours over the weekend. Still, analysts at Xeneta don’t expect this explosion to have a significant effect on the market.

Europe/US ports also report delays

In Northern Europe, congestion at major container ports has worsened over the past few weeks, prompting some carriers to skip certain port calls in the region. However, this does not seem to be causing significant delays.

In North America, East Coast ports are reporting delays due to hurricane, but overall operations remain stable.

Indian ports face workers’ strike

Moreover, India’s government ports might face severe disruption if a dockworker strike starting August 28 isn’t averted. The nationwide strike could halt port operations, affecting imports and exports and stressing the economy. Logistics giant Kuehne+Nagel has warned that the strike could lead to delays, higher costs, and severe congestion, further complicating the already difficult global logistics situation.

But in any case, the downturn is here to stay

A steady downturn in freight rates is expected to continue in the near term, although it will not be as sharp and rapid as the upturn, as long as the Red-Sea crisis remains unsolved.

New ships coming online

The oversupply of new ships added in 2023, which helped spot freight rates to return to pre-pandemic levels when coincided with demand destruction, has somehow been balanced with the Red-Sea diversions. However, ships ordered years ago are still being delivered, increasing supply albeit in a controlled manner.

Demand conundrum

The new shipping capacity additions are coming at a time when demand remains uncertain. As for the near term, the high season in the shipping industry is drawing to a close. More importantly, demand is fundamentally weak with economic indicators largely suggesting an unpromising outlook for the medium term. Although the US economy is faring relatively better, China has still not recovered amid ongoing challenges.

Critical questions: when and to what extent?

Lars Jensen, CEO of Vespucci Maritime, predicts ongoing disruptions in the container shipping freight markets until 2025.

"Between now and peak season 2025, we’ll see many additional vessels being delivered," Jensen said, indicating a gradual decline in rates unless unforeseen events occur. While he anticipates a rate increase in the next peak season – Chinese New Year, it is unlikely to reach the record levels of summer 2024 or drop to the very low levels of late 2023.