Freight rates return to pandemic-era prices; is there any relief soon?

Freight rates have risen for 8 successive weeks with the rally gaining momentum recently amid ongoing bottlenecks in Asian ports caused by lingering Red Sea diversions, and ensuing demand boom and reduced capacity. The latest indexes have climbed above September 2022 levels, suggesting a return to the price territory of the pandemic era. Two critical questions arise at this point: How long will this rally last? Is there any ease in sight?

Spot freight rates almost quadrupled since December

According to Drewry , the world container index increased by 7% to $5117 per 40ft container last week and has increased by 233% when compared with the same week last year.

Standing above September 2022 levels, the latest index displays a total gain of 70% since early May, when the markets saw a cumulative decrease of 32% in three months, while it shows a cumulative increase of 270% from December 2023, when the Red Sea crisis first erupted.

Routes from China showed much bigger cumulative gains with the route to Northwest Europe posting a 107% increase to $6867 per 40 ft container while South Europe rose by 85% to reach $7029. Meanwhile, routes from China to the US soared by 85% to see $6441 for West Coast and by 68% to $7552 per 40 ft container for East Coast.

Drewry expects that freight rates from China will continue to rise next week due to congestion issues at Asian ports.

Rates to India see even more considerable increases

Not only the routes from China to Europe and the US, but also routes to India have also seen big increases. Indeed, they are even bigger than the increases to the west.

According to The Loadstar average spot rates for a 40ft container from North China (Tianjin) to West India (Nhava Sheva or Mundra) have surpassed $5000.

Also, freight rates on Singapore-India routes have skyrocketed to $4500 per 40ft container from last month’s $1100. Overall, intra-Asia rates to India have risen by 200% to 250% over the past month, according to sources.

Red Sea disruption pushes prices back to the pandemic-era

The global shipping industry has been facing challenges particularly since the eruption of the Red Sea crisis in December as soaring demand and capacity constraints disrupt trade routes. Severe congestion on major Asian ports and stronger exports by China due to expected tariff increases have been straining the market, pushing the container rates back to their “price territory of the pandemic era.”

The pandemic era saw a demand boom and limited capacity pushing freight rates to unprecedented levels starting from the second half of 2020 to September 2021. Drewry’s index for Shanghai-West Europe and the US East Coast hit all-time highs at around $15-16,000 per feu back then. It took around one and a half years for the container shipping market to return to pre-pandemic levels amidst normalizing supply-demand dynamics.

Now, considering the cocktail of limited capacity caused by blank sailings, unpredictable schedules, longer delivery times and surging demand from China for containers amid vessel unavailability, industry players are speculating whether the markets will test the pandemic heights this time or not.

How long will this rally last? Is there any ease in sight?

Earlier in May, the shipping industry anticipated freight rates to remain high until at least October, due to the traditional peak season in the third quarter and tight supply of ships and equipment.

Recently, industry experts seem to have extended their prospects, expecting freight rates to remain elevated into 2025. Goetz Alebrand, head of ocean freight at DHL Global Forwarding Americas, said he is not optimistic that freight rates will decline in the near future.

“It is unlikely that the situation will resolve itself soon and [ocean freight] rate levels might not ease up before Chinese New Year,” Alebrand said to CNBC .

CNBC also quoted Sea-Intelligence forecasting that Asia-Europe spot prices could exceed $20,000, pointing to the deepening the Red Sea crisis and the increase in nautical miles traveled as the reasons. According to the same agency, prices saw as high as $30,000 per feu back in their peaks at the height of the pandemic. They argue that these peaks may be the limit regarding how high rates can go.