As the dramatic spike in ocean freight container shipping spot rates continues into July, what needs to happen if the market is to avoid reaching the levels seen during the Covid-19 pandemic?
Rising Spot Rate
Average spot rates from the Far East to North Europe have continued to rise in July to reach USD 7 897 per FEU. This means spot rates on this trade have now passed the halfway point (53%) in the climb towards the pandemic peak of USD 14 783 in January 2022.
Average spot rates on trades from the Far East to the US East Coast and US West Coast are even closer to their pandemic peaks in early 2022 at 72% and 79% respectively.
The current average spot rate of USD 7 648 from the Far East to US West Coast is an increase of 366% since 14 December last year before the escalation of conflict in the Red Sea. The average spot rate of USD 9 146 into the East Coast is an increase of 268% in the same period.
At this point, it is not likely we will see the spot market reach the heights of the Covid-19 pandemic, but it cannot be ruled out completely and the response of both shippers and carriers in the coming months could be decisive.
From a shipper perspective, they should keep their cool and refrain from pushing the panic button as we saw in the first four months of 2024 with the frontloading of imports – particularly into Europe. This increased demand ahead of the traditional Q3 peak season is one of the factors driving the market upwards.
From a carrier perspective, they need to do everything they can to ease port congestion and stop calling at the same transshipment hubs in Asia and Europe.
If this does not happen – and there is no change to the situation in the Red Sea – then spot rates will continue to climb.
Congestion Pain Points
Singapore, the world’s largest transshipment hub, has become an epicenter of disruption in the Far East but the port congestion toxicity has now spread to neighboring Malaysian hubs with Port Klang recording all-time-high congestion on 1 July.
Volumes at Tanjung Pelepas are reportedly up by 20% this year also, however MMC and APM Terminals, which run the port, have claimed the 1.078 million TEU in May 2024 was handled without any congestion.
The congestion in global supply chains is understandable in many respects because carriers have tried to reduce the impact of longer sailing distances around the Cape of Good Hope by stopping at fewer ports – but they almost all still stop at Singapore (or nearby).
For example, Hapag-Lloyd has restarted a China-Germany service (CGX) which has not run since the pandemic. This service only has five port calls – but one of them is Singapore.
With the average TEU of each ship arriving in Singapore rising by 18.5% from January to May, it is not surprising to see congestion has now reached its second-highest level ever, and just 1.9% shy of the August 2021 record of 2,997 TEU per containership arrival.
Shippers To Play Their Part
It is easy to say to a shipper ‘don’t panic’, but they are seeing average spot rates increase by more than 300% in a matter of months and their containers holding essential goods are being rolled.
It is therefore completely understandable that a shipper’s sole focus must be to protect their individual supply chains and business interests. They will do whatever they can to achieve this, whether it is frontloading imports or paying premium rates to guarantee space for their cargo on board ships.
However, these individual agendas do not help the market as a whole because they add to the disruption, amplify the sense of uncertainty and drive rates even higher. Shippers can play a part in helping to ease the pain points in global supply chains by remaining calm and collected.
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Source: Xeneta
