Some shippers are having issues securing capacity at agreed contract rates. The Drewry World Container Index, a weighted average of spot rates on 8 East-West routes, had declined steadily from $3,964/40ft container in January to $2,705 in late April, as carrier networks appeared to settle down after the start of Red Sea attacks. But spot rates then surged 74% between late April and early June – and we know from shippers that many are asked to pay Peak Season Surcharges, reports Drewry.
Drewry has previously identified 4 causal factors behind the recent problems (listen to our recent Freight Loop briefing):
- Stagnant capacity
- Very strong demand growth
- Shipper behaviour
- Operational disruption
Stagnant capacity
Drewry data shows that carriers have added many ships to their East-West services to compensate for the longer routes now used by nearly all the former Suez Canal-dependent carriers. On the Asia-North Europe route, according to Drewry Container Forecaster data, carriers have increased their number of ships by 24% and their total capacity by 17% – see chart.
Asia-North Europe capacity change from Nov 23 to May 24
But this large addition of ships resulted in only a 2% increase in the monthly effective capacity per month, to 1.1 mteu, because these assets are now sailing over longer distances and are less productive than before the Red Sea attacks started.
On the Asia-East Coast of North America route, carriers increased their number of ships by 9% during the same period, but their effective capacity per month increased… 0%.
This is a key factor behind the current tight capacity: about 1 million teu of ship capacity was delivered in the first 4 months of 2024, but this made zero difference to the monthly effective capacity provided to the market.
In our analysis of capacity problems, Drewry considers that the remaining capacity due to be delivered during 2024 will, finally, have an expansionary effect on effective capacity. It will not be a repeat of merely correcting the need for more ships after the Red Sea diversions.
Very strong demand growth
Data for May is still limited, but it is clear that transpacific volumes and volumes on several other routes are stronger than a year ago.
According to the National Retail Federation, US containerised imports in May were forecast to reach 2.1 mteu, an increase of 8% from the 1.9 mteu of May 2023.
We note that, back on May 22, during the pandemic, US imports totaled 2.4 mteu, so the May 24 figure is still 12% lower than during the previous troublesome volume peak.
Shipper behaviour
A survey of Drewry Benchmarking Club members – a group of 100+ multinationals – found that a proportion of international shippers are indeed shipping early, this year. This precautionary policy, often intended to ensure that shipments arrive on time, may intentionally cause capacity issues and delays because the capacity and infrastructures are stressed.
In our analysis of the market, we consider that an early peak season is both a short-term change in the market and a signal that there will be a volume vacuum when the peak volumes have been completed.
Operational disruption
Port productivity has also taken a hit in recent months. The time spent by ships waiting before berthing at high-volume ports tracked by Drewry increased 43% between 3Q23 and 2Q24 – to over 400,000 hours. We heard that a major transshipment port in Asia is experiencing a density of shipping containers in their terminals close to the records of the pandemic. Port strikes on the US East and Gulf coasts could widen the operational disruptions.
Therefore, the large-scale changes in liner networks and the relocation of much transshipment activity to new locations have still not been normalized.
It is now clear that operational disruptions and lower port productivity are severely constraining supply. According to preliminary numbers from the Drewry Container Forecaster (2Q-24 Edition currently being finalized) – the supply-demand balance in the global container market has increased.
Waiting hours vs. supply index
With all these moving pieces, Drewry is now considering the likely duration of the Red Sea diversions and the impact of port congestion on supply and supply. Different scenarios must be considered, and some negative factors are expected to continue after the end of this year.
Of the 4 factors causing the current capacity and efficiency issues, only some look to last longer than a year. The end of the peak season, the continuous delivery of new ships, and the re-opening of the Suez Canal route could all help redress the current supply-demand problems.
Frankly, nobody can answer when normal shipping operations will resume (i.e. when the Suez Canal will be back in full-scale use) with any degree of confidence, but Drewry has tried to harness the collective wisdom of our customers, many of which are involved at the coal face, to at least formulate an educated guess and get a sense of the range of opinions.
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Source: Drewry
