Q1 2024
CONTAINER RATES
With conflict in the Red Sea continuing, most carriers are set to carry on sailing around the Cape of Good Hope for the foreseeable future.
Ocean freight shipping services have now been aligned to this diversion, which in turn has brought a greater sense of certainty to the market and seen rates on the most affected trades steadily decline since their Red Sea crisis peak in mid-January.
Back in January there was peak uncertainty over the impact the conflict would have on capacity, which was compounded by shippers’ concerns over securing space for their cargo onboard vessels during the pre-Lunar New Year rush.
While there are still daily exchanges of fire between Houthi militia and the US and EU naval forces in the region, the diversion around Africa has established a new status quo and relieved some of the pressure on shippers.
The Far East to Mediterranean was the trade which saw average spot rates increase fastest and highest following escalation in the conflict, hitting a peak of USD 6 020 on 18 January.
Since then, rates have fallen by 23.6% to stand at USD 4 600 per FEU on 13 March.
Other major trades have followed a similar trend, with average spot rates falling by double digit percentages since the crisis peak earlier in 2024, but still remaining more than double what they were on 1 December 2023 – whether services were directly impacted by diversions away from the Suez Canal or not.
This is illustrated by the Transpacific trade where average spot rates from the Far East to US West Coast in mid March were 152% higher than mid-December last year – the biggest increase across the major trades over this time period.
The latest data on the Xeneta platform suggests the market will continue to soften, with early indications showing a significant drop on 1 April, but rates are not expected to return to pre-Red Sea crisis levels anytime soon.
Long term rates have increased as a result of the crisis but not at the same pace as the spot market.
The XSI®, which covers the global average of all valid long term contracts in the market, rose 4.3% in February from January. However, the XSI® reading of 154.4 still leaves the index lower than it was in December 2023.
Individual developments in long term rates on the world’s top trades are also more varied than on the spot market.
Long term rates from the Far East to the US West Coast have fallen slightly from early December, down by 6.5% to USD 1 930 per FEU, while those into the US East Coast are up by 21.4% to USD 3 390. This has left the spread between the two US coasts at USD 1 450 per, the highest since March 2023.
Increases in long term rates are largely being driven by the implementation of higher surcharges rather than changes to the base rate.
For example, from the Far East to North Europe, the average of new long term rates (entering validity within the past three months), has increased by 54.2% since 1 December.
However, the base rate on this trade has only risen by 6.2%, while the average total for all applied surcharges has increased by 195%.
These surcharges equate to USD 660 per FEU out of the USD 711 increase in the total rate.
This increasing share of surcharges in the total rate reflects a wider trend of shippers approaching new long term contracts cautiously.
No one wants to lock in a new rate for 12 months given expectations that rates will fall over that period.
For some shippers, this means agreeing to surcharges that will be subsequently lowered, if not removed completely, as the situation develops.
Other shippers are choosing to shorten the length of contract.
This behavior is demonstrated on the Mediterranean to China trade, where 55% of long term contracts that entered validity in Q1 last year covered one year.
However, in Q1 this year, only 18% of all contracts had a one year duration, with all but two other contracts lasting less than 12 months.
