Q2 2024
CONTAINER RATES
Spot rates on the major trades out of the Far East have staged a comeback, recovering the losses made between February and April, to rise above their peaks earlier in the year at the height of the Red Sea crisis.
Average spot rate from the Far East to US West Coast was USD 6 470 per FEU on 18 June, which is an increase of 34% from its previous peak in early February when it stood at 4 820.
From the Far East into the US East Coast, the average spot rate was 7 500 per FEU on 18 June, which is 20% up on its previous peak of USD 6 260 in early February.
There are also significant increases on the spot rate markets from the Far East to Europe.
When compared to 1 December 2023 before conflict escalated in Red Sea, the trade from the Far East into North Europe has seen the biggest rise in average spot rates, increasing by 333% to stand at USD 6540 per FEU on 18 June.
On the trade into the Mediterranean, average spot rates have increased by 282% compared to 1 December 2023 to stand at USD 7090 per FEU on 18 June.
Another trade that has seen significant market movement is the Far East to East Coast South America.
Here spot rates have more than doubled since 14 April, rising to USD 8 445 per FEU on 18 June.
The massive spot rate increases on the fronthaul trades out of the Far East have not been seen on many of the backhauls, with rates from North Europe to the Far East dropping by USD 140 between the end of May and 18 June.
Given the demand imbalances between front and backhaul trades, the tight capacity and high filling factors on the fronthaul aren’t reproduced on backhaul trades, and this is the main reason for such contrasting spot rate markets.
The current situation in ocean freight container shipping brings back memories of Q4 2020 and 2021. Rates rose rapidly, then seemed to have peaked, before a second rally was sparked by the Ever Given blocking the Suez Canal.
A slightly closer comparison, using spot rates from the Far East to the Mediterranean, shows the similarities as well as differences.
Let’s compare the time it took from the first significant rate increase (day-to-day increase of more than USD 500 per FEU) to the market reaching its first peak.
Back in 2020, the starting point for the initial rates spike was 1 December and it took 47 days to reach its first peak, rising by USD 3840 per FEU.
This time around, the recent spike in rates started on 1 January 2024 and it reached its first peak faster, taking only 16 days to rise by USD 1 840 per FEU.
However, while the initial peak may have been reached far quicker in 2024 compared to 2020, the absolute level of spot rates was clearly far lower.
The faster pace of increase in 2024 can be explained by the more sudden nature of the shock and a more dramatic impact on container shipping operations.
However, once the initial shock of diversions in the Red Sea was overcome and adjustments made to service routes and schedules, the overcapacity in the market was seemingly enough to put a ceiling on how high rates would go.
There are also differences when viewing the market decline from its initial peak, with spot rates this year falling by USD 1 900 per FEU compared to a drop of USD 875 per FEU in 2021.
A smaller drop in 2021 despite rates having risen higher can partly be explained by the Chinese government’s intervention on spot rates, preventing a further spiraling which may have continued had market dynamics been the sole driver.
The second uptick, which this year has seen spot rates on the Far East to Mediterranean trade increase by USD 2 915 per FEU from 30 April to 18 June, must be compared to the almost year-long spiraling of rates during the Covid-19 pandemic, which ended up peaking at USD 14 000 per FEU in March 2022 and a massive USD 5 640 higher than the first peak in January 2021.
Spot rates increased further in mid June, but the growth is slowing compared to May. So, for now at least, it seems unlikely – but not impossible – that history will repeat itself.
In contrast to the spot rates, the long term market has been much more stable this year – but this offers little relief for shippers who are facing the consequences of an increasing spread between short and long term rates.
Xeneta’s global XSI®, which covers all valid long term contracts, showed the market stabilizing in late 2023 and 2024 as pandemic era contracts expired. In May 2024 the Global XSI® stood at 150 index points, or about 30% higher than May 2019, with little effect from the turbulence in spot rates during the past six months.
The shadow of overcapacity once a large-scale return to the Red Sea is made looms large and meant carriers were keen to secure shippers’ volumes on long term rates during contract negotiations, even if that meant the new agreements were at much lower levels than the spot market.
However, with the spread between long and short term rates now growing to levels last seen in 2022, old problems are resurfacing for shippers. From the Far East to US East Coast the spread on 12 June stood at USD 3 800 per FEU, the highest it has been since January 2022.
The volatility in the market over the past few years is clear when considering that at the end of 2022 this spread was inversed with the long term market USD 4 475 per FEU more expensive than the spot.
The increasing spread between spot and long term rates has once again seen many shippers not being able to transport their containers on contracted rates, and instead are experiencing cargoes being rolled and the return of premiums in exchange for space guarantees.
Some bigger shippers are largely insulated from the current situation, with carriers prioritizing their relationship and volume commitments in the longer term when overcapacity once again becomes an issue.
Others, particularly smaller shippers and those with contracts through freight forwarders (who are struggling to secure space) are less insulated, with many carriers not upholding previously agreed NAC rates and instead pushing the freight forwarders to the spot market.
Though the major movement in spot rates has been on the top trades out of the Far East, shippers elsewhere should not assume they will not be impacted.
Expect a repetition of what we have seen before: carriers taking ships off some trades and redeploying them on others where spot rates are higher – in turn tightening capacity on these secondary trades and sending rates up there too.
Underlying the recent spot rate movements are the continued diversions around the Cape of Good Hope. However, while that alone drove the initial spike in rates – its ripple effects are what have pushed the market over the edge and caused the latest rally in rates.
To minimize the delay caused by the diversion, carriers have adjusted their networks including cutting off port calls at either end of their services, avoiding port calls that are no longer on the direct route and establishing new transshipment hubs (or increasing the use of well-placed existing ones).
Data from Sea-Intelligence shows that in April delays were absorbing 5.7%. In April last year it stood at 3.9%, having not fully recovered from the highs of the pandemic. In 2019 it averaged 2.3%.
One clear example is in the Mediterranean. Carriers have cut port calls in the Eastern Mediterranean which are no longer ‘on the way’ when not transiting the Suez Canal.
The port of Barcelona has seen a 52.9% increase in its transshipped volumes in the first four months of the year, bringing it up to 616 000 TEU. Berth congestion, exacerbated by a labor shortage, has seen the 7-day average waiting time reach four days (source: Sea-explorer).
Another example is in Singapore, an already established transshipment hub which has seen its use increase. This is partly due to carriers cutting out of hubs further east such as Colombo or in the Middle East – these are easy to call at when sailing towards the Suez canal, but require a sizeable detour when headed for the south of Africa.
Singapore is also seeing more activity due to port calls further north, such as in Japan, South Korea and northern China being cut in favor of faster transit times.
The number of ships calling at the port of Singapore have risen to their highest level since 2021, peaking at the end of May with 68 ships over a seven day period.
This has led to a build up in waiting time and congestion outside of the port as well as higher yard congestion, longer export dwell times and lower productivity.
All this means that in April only 10% of ships calling at the port of Singapore arrived on time. Some ships are waiting up to seven days, though the average stands at 2.2 days. As carriers have adjusted to the situation, conditions improved in late May, but have recently ticked back up with 63 ships (totaling 403 300 TEU) in the seven-day period ending 10 June.
The shift in global container shipping patterns due to diversion around the Cape of Good Hope has also led to equipment shortages in certain regions. India and the Indian Subcontinent are particularly badly hit due to losing the through traffic from the Far East heading west.
In China, average container prices (40ft) in key ports rose by 45% in May, from USD 2240 in April to USD 3250 in May 2024. This compares to USD 1 700 in November 2023 (before the Red Sea crisis) and USD 7 180 in September 2021 (at the height of the pandemic disruption), suggesting concerns around the availability of containers is increasing (source: Container xChange).
While individually all of these issues would seem manageable and not likely to provoke such a sharp reaction in freight markets, combining them all has been enough to once again send spot rates soaring, especially when the disruption of the pandemic years is still fresh in the memory. This nervousness has also led some shippers to bring forward their peak season imports, which has further amplified the fallout.
