Demand for ocean freight container shipping hit an all-time record in May, with 15.9m TEU (20ft-equivalent container) shipped globally.
While this figure demonstrates the huge volumes being transported on a global level, the increasing demand is not spread evenly across the world’s ocean supply chains.
It is vital for importers and exporters to understand why there is such an increase in demand, on what trades it is found and the potential implications – both now and in the future.
How much has demand increased?
Data released this week by Container Trades Statistics:
- The 15.9m TEU shipped globally in May beats the previous record of 15.7m TEU set in May 2021.
- 74m TEU were shipped in the first five months of this year, which beats the previous record set in 2021 by 0.15m TEU.
- Volume shipped in first five months of 2024 is also up by 5.2m TEU compared to the same period in 2023.
- Demand across all global fronthaul trades in May set a new record, rising to 7.3m TEU.
Demand comparison across fronthauls and backhauls
Increasing demand can have dramatically different impacts on the market depending on the trades it is found. For example, volumes on backhaul trades can increase significantly without having any major impact due there being spare capacity in the market.
On the other hand, any change in demand on the major deep sea fronthaul trades is quickly felt in the market. In the first five months of 2024, fronthaul volumes are up by 10.4% compared to the same period in 2023 while growth on backhaul and intra-regional trades has increased by 4.4% and 5.5% respectively.
To demonstrate the impact this has had on the market, average spot rates on major backhaul trades to the Far East have continued to soften from their Red Sea crisis peak earlier this year. However, spot rates on the fronthaul from the Far East into North Europe have increased by almost 150% since the end of April. From the Far East into the US East Coast and US West Coast, average spot rates have increased by 132% and 140% respectively.
Demand in relation to wider market conditions
The record-breaking demand of 7.3m TEU across all global fronthauls in May means it is perhaps unsurprising to see the market react in the way it is has – but monitoring demand must always be done in the context of supply.
Fronthaul demand also breached the 7m TEU milestone in August and December last year, but this was at a time when average spot rates were falling and carriers were struggling to fill their ships (and that is before 1.7m TEU of new ships were delivered so far in 2024).
This makes clear that the level of demand in 2024 would be manageable under ‘normal’ operating conditions.
Impact of Red Sea conflict
The simple reason global ocean container shipping networks are unable to cope with the level of demand in 2024 is due to the impact of conflict in the Red Sea and diversions around the Cape of Good Hope.
This highlights the importance of understanding where the demand is found. Increasing global volumes in 2024 are largely driven by record-breaking exports out of China. In May, China exported 6.2m TEU, which is another all-time record (of which 853 000 TEU are intra-China demand).
Chinese exports accounted for 39% of global container volumes in May. Almost a quarter of Chinese exports were sent to Europe and the US East Coast - the major trades most affected by longer sailing distances around Africa.
The impact of this is shown in TEU-mile calculations, which reflect the distance each container is transported globally.
TEU-miles have increased by 17.9% globally in 2024 to-date compared to the same period in 2023, which is mainly the result of the longer voyages around Africa. Had ocean container carriers continued to utilize the Suez Canal, TEU-miles would have increased by a lesser – but still significant – 8.6%.
This demonstrates how the Red Sea conflict has amplified the increase in demand. And that does not take into consideration other knock-on impacts of the conflict such as severe port congestion in Asia and Europe.
Impact of high demand could trickle down onto smaller trades
High global demand has given carriers the opportunity to pick and choose which containers to load onto ships and seen shippers (and freight forwarders) finding themselves paying higher rates and surcharges to secure space for their cargo.
Carriers will take advantage of this situation and increase revenue by redeploying capacity off smaller trades onto the more lucrative major fronthaul trades where demand is higher. This will consequently reduce capacity on the smaller trades and increase rates here too.
The message to shippers who use secondary trades is, ‘enjoy it while it lasts’, because it is likely increasing spot rates will trickle down from the major trades.
What next?
The record-breaking demand will grab headlines in the here and now, but what are the longer term prospects for the market?
To understand this, businesses must focus on the two main drivers of the container market – demand and supply.
Record container shipping demand in 2024 cannot only be explained by underlying consumer demand. It is also a consequence of shippers bringing imports forward ahead of the traditional peak season, whether due to nervousness over market conditions worsening or factors such as tariffs on China imports and threat of strike action at ports on the US East and Gulf coasts.
This frontloading has contributed to increasing demand so far in 2024, but there will be a flipside when businesses start drawing down on the stocks they have built up.
Focusing on supply, severe port congestion in Singapore is now improving and continued delivery of new ships will add to available capacity. But congestion will take time to fully de-pressurize and has spread to other major ports.
The situation can only be fully resolved by a large-scale return of ocean container ships to the Suez Canal. With no real prospect of that happening in the near future, shippers could be set for further pain in the coming months.
That said, conditions can improve for shippers before a large-scale return is made. As we saw in March and April when spot rates softened, an improvement in congestion and lower demand could be enough to return to some form of stability in the intermediary.
Understanding the demand-supply balance across all trades in your supply chain, while continuously monitoring its impact on the long- and short-term contract market, is the best way to make the right decisions at the right time.
You can do all this in the Xeneta platform, You can also learn more about how the turbulent global situation may evolve in the months ahead by downloading your copy of the 2024 Outlook Mid-Year Ocean Freight Update here.
