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Freight rates snap rally, Red Sea crisis keeps decreases in check

by Ayşe Vildan Cansız - acansiz@chemorbis.com
by Esra Ersöz - eersoz@chemorbis.com
  • 14/02/2024 (10:59)
Global ocean freight rates have corrected down for the past two weeks, after going through the roof in January . This is because demand has notably slowed down due to Chinese Lunar Year holidays and shipping companies started to add vessels and optimize their operations in accordance with the current shipment conditions in the Red Sea.

Although rates posted weekly declines, the ongoing logistic hurdles due to the Red Sea crisis have kept the drops under control while rates are still way above the pre-Red Sea period.

Panic response subsides, carriers adapt to new routes

The panic response to the recent changes in the freight industry has finally subsided and carriers started to adapt to new, longer routes around the Cape of Good Hope, optimizing their operations in accordance with the ongoing conditions in the Red Sea. Holiday lull in Asia, which is on holiday for the Chinese Lunar Year, has led to a significant slowdown in demand. This is because demand in China usually picks up before the holidays and tends to slowdown afterward. Subsequently, longer lead times and logistic disruptions’ impact on freight trade has been limited for the past two weeks. Asian export hubs have seen improvements in space and equipment availability, while operations were smooth at most major ports amid few signs of congestion.

Another factor that contributed to the recent correction in freight rates has been the lack of supply pressure on carriers. Carriers have been adding extra capacities to the market in order to hedge against possible shipping turmoil, especially after the pandemic period, which rattled global freight industries. Maersk, a shipping consultancy stated, “There will be too much container capacity out at sea for the remainder of 2024. The Red Sea disruption is absorbing some of the overcapacity temporarily.”

Global indexes mostly stable to down this week

Freightos data showed that global container freight index remained mostly unchanged from last week at $3,393/feu as of February 9, following a 1% decline observed for the previous week. However, the global index is still considered elevated as it stands about %150 above the pre-Red Sea rates.

Drewry composite index decreased more by 5% in the last two weeks to stand at $3,786 per 40ft container as of February 8. Meanwhile, the composite index is still %88 higher when compared to the same week of the previous year.

China – Asia routes slump

Freightos data showed that China/East Asia to North Europe route decreased by 8% to stand at $4,697 per feu as of February 9., following a 7% slump in the previous week. The Mediterranean route was also down by 7% from the previous week to stand at $5,758, after a decrease of around 3.5% in the previous week. Cumulative increases for these routes during the period between mid-December and mid-January had reached around 170% for Mediterranean and 240% for North Europe.

Drewry’s freight rates for Shanghai to Genoa index also decreased by 11% or $623 to $5,225 per 40ft box while Shanghai to Rotterdam fell by 5% or $235 to $4,426 per feu. The cumulative decrease in the past two weeks reached 17.5% for the Shanghai-Genoa route and 11% for the Shanghai-Rotterdam route following a cumulative gain of 225% for Genoa and around 200% for Rotterdam route during the upswing.

The pace of increases on China-US routes picks up

Spot prices for the China-US routes extended their increases into another week with the size of increases picking up.

According to Freightos, latest index for China/East Asia - North America West Coast increased by 11% to stand at $4,859/FEU while the index for the East Coast rose to $6,589/FEU, up by 3% as of February 8. Index for China/East Asia – North America West Coast was up by 6.5% for the previous week while index for the route to East Coast was up by 3.5%. These latest increases brought cumulative increases seen for these routes in the last two weeks to 18.5% and 7% respectively.

Drewry’s data for the same routes also showed a continued uptrend with indexes standing at $4,771/FEU for the West Coast and $6,268/FEU for the East Coast. These levels pointed to weekly increases of 8% and 2% respectively. In the previous week, rates to the East Coast were unchanged on the week while rates to West Coast were up by just 2%.

What awaits shipping industry?

Although the ongoing crisis in the Red Sea is expected to remain intact for the foreseeable future and continue affecting global freight rates, some analysts expect the impact to be relatively limited as compared to the previous weeks.

Maersk CEO Vincent Clerc said, “The global supply chain remains fluid, and demand and supply dynamics remain steady”. He added further, “This is because there are levers today to absorb the impact without further disruption by using the capacity that was underemployed at the end of 2023.” Indeed, Maersk expects global container volume growth to be in the range of 2.5-4.5% in 2024.

That is to say, the recent correction in global freight rates is likely to continue for at least the first quarter of 2024 on the back subsiding demand, excess capacities and carriers adapting to the new normal. However, the Red Sea crisis will undoubtedly partially counterbalance the overcapacity and keep rates elevated compared to the pre-crisis period.
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