Red Sea-Driven Surge Loses Momentum

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Mass diversions of container ships around Africa’s Cape of Good Hope caused spot rates to surge, but the Red Sea effect has a limit, which may have already been reached, says an article published on freight waves website.

Summary

  • Mass diversions of container ships around Africa’s Cape of Good Hope, due to Red Sea security concerns, initially caused a surge in spot rates. However, the upward momentum is slowing down, with rates in most lanes leveling off.
  • The Shanghai Containerized Freight Index (SCFI) dropped by 2.7% in the week ending Friday, marking the first weekly decline since late November.
  • The current rate surge is attributed to supply challenges, unlike the demand-driven supply chain crisis in 2020-2022.
  • Container lines anticipate relief with the delivery of a record number of new ships this year and the upcoming Chinese New Year holiday in early February, which is expected to temporarily limit vessel demand.
  • Lars Jensen, CEO of consultancy Vespucci Maritime, anticipates a drop in demand and a settling of vessels and equipment flows into predictable patterns after the Chinese New Year.
  • While the SCFI indicates a pullback in spot rates, the China Containerized Freight Index (CCFI), which includes contract rates, rose by 9%. This suggests a nuanced market dynamic with potential variations in spot and contract rates.
  • Platts assessments imply that a peak may have been reached in spot rates, with reductions seen in North Asia-Mediterranean and North Asia-North Europe routes.

Spot Rates And Indexes Stabilize

The mass diversions of container ships around Africa’s Cape of Good Hope, prompted by security concerns in the Red Sea, have initially caused a surge in spot rates. However, the upward momentum is showing signs of slowing down, with rates in most lanes leveling off. Several indexes for European lanes have even pulled back.

Shanghai Containerized Freight Index (SCFI) Reflects The Shift

The SCFI dropped by 2.7% in the week ending Friday, marking the first weekly decline since late November. According to Jefferies shipping analyst Omar Nokta, the squeeze in freight rates into Europe is gradually abating, though rates in other regions remain firm.

Shift From Demand To Supply-Driven Dynamics

Unlike the demand-driven supply chain crisis in 2020-2022, the current rate surge is attributed to supply challenges. Liner diversions around the Cape of Good Hope, while extending voyage times, are tying up ship and container equipment supply. However, as liners adjust schedules to accommodate longer routes, rates are expected to stabilize, barring unforeseen increases in demand.

Anticipated Factors Affecting Rates

Container lines are anticipating relief with the delivery of a record number of new ships this year, providing additional vessel supply to handle longer routes. The upcoming Chinese New Year holiday in early February is expected to temporarily limit vessel demand, offering a brief respite.

Post-Chinese New Year Predictions

Lars Jensen, CEO of consultancy Vespucci Maritime, anticipates a drop in demand and a settling of vessels and equipment flows into predictable patterns after the Chinese New Year. While rates are expected to remain higher than pre-crisis levels due to the longer routes absorbing more capacity and incurring extra costs, a decrease in spot rate spikes is anticipated. In contrast, contract rates may see an increase, hinting at a potential establishment of a round-Africa pattern for the foreseeable future.

Contrasting Indexes, SCFI Vs. CCFI

While the SCFI indicates a pullback in spot rates, the China Containerized Freight Index (CCFI), which includes contract rates, rose by 9%. This divergence suggests a nuanced market dynamic with potential variations in spot and contract rates.

Platts Indexes Point To A Peak In Spot Rates

Platts assessments imply that a peak may have been reached in spot rates, with reductions seen in North Asia-Mediterranean and North Asia-North Europe routes. However, rates in U.S. import lanes remain at their highest levels, albeit with slowed gains.

Drewry WCI And FBX Indexes Reflect Varied Trends

The Drewry World Container Index (WCI) shows rates still rising, albeit at a slower pace in European markets. Meanwhile, the Freightos Baltic Daily Index (FBX) global composite indicates a flat trend since Monday, with varying rates in different China-Europe and China-U.S. routes.

As the container shipping industry navigates these challenges, stakeholders are closely watching how factors like vessel deliveries, holiday dynamics, and evolving trade patterns will influence the trajectory of shipping rates in the coming months.

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Source: freight waves

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