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Is the rally for shipping freight rates roaring back?

by Esra Ersöz -
  • 15/05/2024 (09:23)
Having been steadily sliding since February this year right after going through the roof in January upon the emergence of the Red Sea crisis , spot freight rates for container shipping recorded a cumulative slump of around 32% until late April, according to global benchmarks. As of early May, the trend in freight rates appears to have turned upwards with the rally gaining momentum particularly recently.

Drewry’s world container index increased 16% to $3159 per 40ft container this past week, while Freightos raised its global container freight index by 12% to $2876 per 40 ft container following an increase of 7% in the prior week.

The routes from China to Europe and the US spike

This big increase is surely triggered by the gains in the routes from China/Northeast Asia to the west.

Drewry suggested a weekly increase of 20% for Shanghai-Rotterdam at $3709 and 16% for Shanghai-Genoa at $4295 per 40 ft container. Similarly, there was an increase of 16-18% from Shanghai to the US at $3988 for Los Angeles and $5089 for New York.

Freightos also announced a weekly increase of 17% from China to Europe, with North Europe standing at $4151 and Mediterranean at $5179 per 40 ft container. The routes from China to the US saw a relatively smaller hike with 14% for the west coast at $3873 and 8% for the east coast at $5093.

Why is the rally back?

Although this time of the year is usually considered a slack season, particularly for the routes from Northeast Asia to Europe, industry experts mainly attributed the latest rapid hikes in freight rates to a sustained capacity demand, blank sailing programs and the expectation that there will not be a solution for the Red Sea crisis at least until the year-end.

Blank sailings and the Red-Sea crisis

Blank sailing and the Red Sea crisis are indeed nothing new in the equation as the container shipping industry has been trying to outbalance excess capacity built during the pandemic with blank sailings for around two years. Experts also continue to argue that it is still a carrier-controlled market, and they keep cutting capacity despite the Red Sea crisis.

As for the Red Sea crisis, the industry was also slowly trying to adapt to the longer transit times from Asia since February, with freight rates steadily and slightly sliding to erase the previously massive gains.

It is still noteworthy that the 32% loss witnessed between February and May was still considerably smaller than the gains achieved between December and late January, when the global indexes skyrocketed by more than 170% in less than two months as a knee-jerk reaction to the Houthi attacks on the Red Sea.

Drewry – Container – Freight – Index

That is to say, the recent uptick in freight rates has come, even before half of the earlier gains were wiped off.

Red Sea disruptions are here to stay

During the publishing of Q1 results, Maersk CEO Vincent Clerc said that shipping disruptions caused by Houthi militants’ attacks on vessels in the Red Sea were expected to last at least until the end of the year, adding that growth in demand for container shipping had been stronger than forecast’.

Better than expected demand outweighs capacity

Demand has apparently been a game-changer recently. China’s Caixing Global pointed to increased overseas demand as the main driver behind the recent surge in freight rates from China to Europe and the US as well as supply disruptions caused by the intensifying crisis in the Red Sea.

Maersk also reported a 9% growth in their sales volumes to Europe in Q1, attributing it to the restocking activities of European importers and subsiding fears about the poor performance of the macro environment.

Analysts expect the industry to remain tightly balanced, although the degree of the tightness in the industry is highly debatable given the persisting blank sailings. Plus, they argue that the season has started earlier than usual as it usually runs through June to September. Therefore, estimations largely call for the continuation of strong demand into Q2.

Surcharges kick in for contracts

Under these circumstances, all major container carriers have announced further Peak Season Surcharges and General Rate Increases (GRI) on both short and long-term contracts.

According to The Loadstar, Maersk was to implement a $1500 per 40ft peak season surcharge (PSS) from Asia to North Europe from May 13, but sources suggest that new PPS pricing has already begun to be applied.

The Loadstar also quoted sources expecting to see “significant rate increases for the second half of May”, and speculated their suggestions that prices could reach $5000 per 40ft on Asia-North Europe and $5400 on Asia-Mediterranean by June.
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