When container rates retreated from their pandemic-induced highs, shippers breathed a collective sigh of relief, and carriers started making plans about how to spend all that dough.
Contributing factors then included a supply-demand mismatch of stuck-at-home consumers turning to ecommerce to get their goods and a global supply chain that couldn’t keep up. Of course, it wasn’t as simple as that, since there were layers of complications along the journey from raw materials to the finished goods arriving at consumers’ doors.
But one thing was universally true: Everyone was pretty much caught off guard.
Since there were so many unprecedented dynamics unfolding at such an unprecedented pace, stakeholders across the supply chain spent much of their time putting out fires while trying to stay afloat. There were many lessons learned during the pandemic, and companies have worked diligently to institute new strategies to better prepare for future disruptions.
Still, here we are again — with container rates undergoing a surprising surge in recent months, supply chain stakeholders caught off guard, and that familiar creep of fear about if and when there’ll be an end in sight.
How high will they go?
It’s an eye-catching headline: “$20,000 a box? Spot rates on Asia-Europe ready to eclipse pandemic highs.” That’s according to Sam Chambers in a June 10 article for Splash247.com.
In the article, Chambers cites several experts about the surge in rates — including Copenhagen-based Sea-Intelligence. In his June 13 report, Alan Murphy, Sea-Intelligence CEO describes related market dynamics.
“Spot rates continued to skyrocket this week and shippers are clearly getting anxious, in relation to [how] high rates may go,” he says. “But the truth is, nobody really knows. Simply put, prices will increase until sufficiently many shippers cannot afford to ship their goods. This will lower container demand, to the point where it matches the available vessel capacity. But the actual level where this happens is not known. The easiest answer to ‘how high can rates go?’ would be to point to the maximum level seen during the pandemic. This, however, does not account for the increased round-Africa sailing distances that weren’t present during the pandemic.”
Murphy provides a detailed explanation indicating that, when those longer routes are taken into consideration, rates could surpass pandemic highs.
“And here we arrive at the scary scenario for shippers,” he says. “If the rate paid per nautical mile reaches the same level as during the pandemic, we will see spot rates of 18,900 USD/FFE from Shanghai to Rotterdam, 21,600 USD/FFE from Shanghai to Genoa, and 2,200 USD/FFE on the back-haul from Rotterdam to Shanghai.”
Murphy includes a disclaimer that his numbers don’t represent the max rates could reach, but are a comparison of what could happen if per-nautical-mile rates reach pandemic highs.
Contributing factors
In a May 31 article for Container News, Xeneta Chief Analyst Peter Sand described the market upheaval being felt across the board.
“There is a cocktail of uncertainty and disruption across global ocean freight supply chains at present and this is fuelling the spot rate increases,” he said. “However, it is the speed and magnitude of this recent spike that has taken the market by surprise – including the CEOs of the world’s biggest ocean freight liner companies.”
Sand explained that — according to Xeneta data at the time — factors making up that cocktail include “ongoing conflict in the Red Sea, port congestion and shippers deciding to frontload imports ahead of the traditional peak season in Q3.”
“Importers have learned lessons from the pandemic and the most straightforward way to protect supply chains is to ship as many of your goods as you can as quickly as possible,” he added. “That is what we are seeing with some businesses telling us they are already shipping cargo for the Christmas period in May.”
April Global Port Tracker data released by the National Retail Federation and Hackett Associates on June 10 served as confirmation that peak season has changed: “Monthly Import Cargo To Hit Highest Level Since 2022,” the headline read.
“Imports of containerized goods at U.S. ports are booming, with particularly strong growth on the West Coast,” Hackett Associates Founder Ben Hackett said. “In the last couple of years, we have witnessed a flattened peak season that has stretched out the volume of imports over extra months versus the strong, consolidated surge seen in the past. Reasons range from retailers restocking following strong sales after the pandemic to trying to get ahead of increased tariffs on goods from China set to take effect in August and ensuring sufficient inventories for the holiday season amid strong consumer demand.”
In addition to an earlier peak season, Sand said carrier diversions to avoid the Red Sea have been pushing up rates.
“Ocean freight carriers have tried to remedy the diversions in the Red Sea by increasing transshipments in the Western Mediterranean as well as in Asia, but this has led to severe port congestion in several hubs,” he said. “Carriers have tried to re-align capacity from other major trades to cope with longer sailing distances around the Cape of Good Hope on services from the Far East to Europe and the US East Coast, but this has contributed to rates increasing on trades such as the Transpacific, which do not transit the Suez Canal.”
Beyond specific factors, Sand underscored a familiar dynamic of a global supply chain: the unruly ripple effect.
“Everywhere you look there are knock-on impacts and unintended consequences which only serve to fan the flames of uncertainty across the ocean freight container shipping industry,” he said.
Relief in sight?
Still, Sand’s analysis wasn’t all gloom and doom: “While average spot rates will increase again on 1 June, the growth is not as rapid as it was during May, which may hint towards a slight easing in the situation. This cannot come soon enough for shippers who are already having their cargo rolled, even for containers being moved on long-term contracts signed only a matter of weeks ago.”
According to Xeneta’s most recent report, issued on June 14, his prediction was spot on.
“Ocean freight container shipping spot rates are set to increase further, but there are signs the recent dramatic growth may be slowing,” according to the post. “The latest data from Xeneta…indicates spot rates on major trades out of the Far East will increase again on 15 June, but to a less dramatic extent than witnessed in May and early June.”
“Any sign of a slowing in the growth of spot rates will be welcomed by shippers, but this is an extremely challenging situation and it is likely to remain so,” Sand said in the June 14 analysis. “The market is still rising and some shippers are still facing the prospect of not being able to ship containers on existing long term contracts and having their cargo rolled.”
Comparing average spot rates in mid-December (prior to the outbreak of the Red Sea conflict) to the year prior, Sand said “average spot rates from the Far East are up 276% into the US West Coast and 316% into North Europe – these are huge financial hits for shippers to absorb.”
He also provided a list of factors that continue to fuel uncertainty and higher rates:
- “With ongoing conflict in the Red Sea region, congestion at ports in the Mediterranean and Asia, equipment shortages and shippers frontloading imports ahead of the Q3 peak season, the pressure within the ocean freight container shipping system is still at severe levels.”
- “The breakdown of labor negotiations and threat of union action at US East Coast and Gulf Coast ports will add even more pressure and move the needle further into the red.”
- “We must also consider the potential impact spiraling ocean freight container shipping spot rates can have on inflation in the US and Europe if these increasing costs are ultimately passed on to the end consumers.”
“At the moment it is unlikely – but not impossible – that spot rates will reach the levels seen during the Covid-19 pandemic but there are so many factors in play it is not possible to predict the market with any degree of certainty,” Sand concluded. “For example, any potential ceasefire between Israel and Hamas could change the picture completely if it helps to end attacks on container ships by Houthi militia and see a large-scale return of carriers to the Red Sea region.”
A June 11 WSJ article concurred: “Shares in shipping and logistics providers came under heavy selling pressure Tuesday as investors digested news of a possible cease-fire between Israel and Hamas, which could see containerships return to the Red Sea and send freight rates lower. …”
