Container Shipping Rates Surge Amid Supply Chain Disruptions

The final week of June has seen a surge in spot rates for shipping forty-foot equivalent containers (FEUs) from China to North America, reaching their highest levels since summer 2022, and continuing to climb. This signals a return of supply chain disruptions in the maritime industry, reports Freight Waves.

Pandemic-Era Supply Chain Disruptions

During the pandemic, supply chains were disrupted by several factors:

1. Spiking demand for goods.
2. Limited production availability due to quarantines.
3. Insufficient transportation capacity.
4. Limited port infrastructure.
5. Panic ordering by companies.

Currently, factors 1, 2, and 4 are not present, but 3 and 5 are. The increase in order lead times affects all downstream transportation and logistics.

Demand Stability

Goods demand has remained stable over the past few years, performing better than expected. Orders for durable goods fell slightly year over year in May. The Inbound Ocean TEUs Volume Index (IOTI), which measures bookings of twenty-foot equivalent containers from China to the U.S., is up 15% year over year but down 13% from 2023 peak levels hit last August.

Capacity Challenges

The Israel-Hamas war, starting in October last year, has disrupted one of the primary shipping routes. Attacks by Houthi rebels in the Red Sea have extended trips by an average of 10-12 days, removing capacity from vessels that normally travel through the Red Sea. This diversion impacts over 25% of global capacity, indirectly affecting goods heading from Asia to the U.S.

Average vessel capacity for ships moving from China to the U.S. is down about 8% year over year in June, with a consistent downward trend since last September. Service deterioration is another issue, with port pair delays growing from three to five days over the past year. Rejection rates have also increased, moving from about 8% through most of 2023 to above 10% this year, with a current value of 14.5%, the highest since the start of the Red Sea issues.

Looking Ahead

The peak season for maritime imports is traditionally in July and August. If the current demand growth is due to orders being pulled forward to ensure on-time delivery, the next two months’ IOTI will be flat. Otherwise, there will be more pressure on rates and capacity. This imbalance could benefit domestic intermodal and boost the overcapacity-laden trucking industry. While this situation does not mirror the chaos of the pandemic era, supply chains will face more challenges than last year.

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