Global freight rates return to pre-pandemic levels; pessimism persists amid new mega-vessels

Global benchmarks largely indicate a return for freight rates to their 2019 levels, before the pandemic kicked off. The rally first roared right after the first half of 2020 and freight rates hit their all-time high in September 2021. It has taken almost 2 years for shipping markets to erase their near-eight-fold increases driven by the pandemic.

According to Freightos, the latest global container freight index was at $1277 per FEU, at its lowest since November 2019. Drewry’s composite world container index, however, stood at $1494 as of the last week of June, staying well above Freightos but only 5% above their 2019 (pre-pandemic) average.

Outlook is not promising

The recent reports for the ocean freight market indicates a persisting pessimism regarding a peak season rebound in North America and Europe this year. Freightos’ new projections also suggest that the anticipated surge in demand for shipping during the peak season may not materialize as expected.

Furthermore, the increase in demand for Asia to North Europe routes might struggle to push up freight rates due to the entry of several new ultra large vessels into the market. These larger vessels are set to replace smaller ships in July and August, potentially exerting downward pressure on rates.

A challenging market is here to stay in H2

According to MSI’s June Horizon containerships report, the second half of the year is expected to be challenging for the sector unless there is a significant increase in demand to offset the massive capacity injections.

The report highlighted the ongoing unfavourable global macroeconomic environment with significant monetary tightening, predicting potential recessions in Europe and the United States. MSI expects only a small rise in freight rates in the late third quarter, with risks heavily weighted to the downside.

The impact of new mega-ships and slowing growth

According to Alphaliner, THE Alliance, consisting of Hapag-Lloyd, ONE, Yang Ming, and HMM, has announced plans to gradually introduce four new 24,000 TEU ships in July and August. These new mega-ships will replace vessels with capacities ranging from 13,400 to 19,870 TEU. However, analysts believe the timing of this introduction is unfavorable, and the subsequent cascading of the current vessels to other trade routes will exert additional downward pressure on rates in those lanes.

Maersk’s June Asia Pacific market update also acknowledges that the growth expected in the second half of the year will be much slower compared to the previous six months. The report highlights that although the global economy displayed resilience in the first half of 2023, concerns arise due to persistent inflation and the lingering impact of past monetary policies. Analysts express apprehension regarding the economic outlook for the latter half of the year.