FAK Rate Hikes Holding Strong As Peak Season Demand Predicte

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  • Amid widespread vessel diversions and surprisingly robust demand, container shipping lines are experiencing a turnaround in fortunes, with FAK rate hikes showing initial success.
  • Strong cargo demand across major trade routes, combined with the ongoing Red Sea crisis, is expected to maintain freight rates at elevated levels through the peak season.

Recent FAK rate hikes announced earlier this month are showing signs of success, with excess container liner capacity being absorbed by widespread vessel diversions. According to a shipping consultancy, the initial indications suggest that these rate increases are sticking, supported by a rebound in cargo demand worldwide.

Strong Demand Trends

Loaded imports at US and Canadian west coast ports grew by 23.8% year on year in the first quarter, while European imports from the Far East increased by 11.5% year on year in the first two months of the year. Asia-Middle East/India and Asia-Oceania trades saw significant volume growth, contributing to robust demand trends.

Impact of Red Sea Crisis

The ongoing Red Sea crisis, compounded by robust demand trends, is expected to keep spot freight rates at current elevated levels through the peak season. With few signs of resolution to the crisis, freight rates are likely to remain stable in the near term.

Potential Reversal

Positive sentiment could evaporate if the Houthis cease attacks and shipping resumes the shorter Suez Canal route. This scenario could lead to a collapse in freight rates and a reversal of the supply-demand situation, as diverted capacity returns to the market.

Optimism in Charter and Second-Hand Markets

The mounting optimism is reflected in both the charter and second-hand markets, with one-year time charter rates and recent second-hand sales seeing significant increases compared to previous years. Carriers’ return to the second-hand market suggests optimism about cargo demand and sustained charter rates.

Future Outlook

Charter rates are expected to continue rising over the second and third quarters, driven by ongoing demand and limited new deliveries. However, a decline in Q4 is anticipated due to the influx of new vessels, signaling a potential return of excess capacity pressures beyond Q3. Despite this, the industry outlook for the next two quarters remains relatively positive, particularly for non-operating owners.

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Source: The Loadstar