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What can stop ocean freight container spot rates reaching pandemic levels?

As the dramatic spike in ocean freight container shipping spot rates continues into July, what needs to happen if the market is to avoid reaching the levels seen during the Covid-19 pandemic?

Average spot rates from the Far East to North Europe have continued to rise in July to reach USD 7 897 per FEU. This means spot rates on this trade have now passed the halfway point (53%) in the climb towards the pandemic peak of USD 14 783 in January 2022.

Average spot rates on trades from the Far East to the US East Coast and US West Coast are even closer to their pandemic peaks in early 2022 at 72% and 79% respectively.

The current average spot rate of USD 7 648 from the Far East to US West Coast is an increase of 366% since 14 December last year before the escalation of conflict in the Red Sea. The average spot rate of USD 9 146 into the East Coast is an increase of 268% in the same period.

WRU wc 1 July 24 F to US spot

At this point, it is not likely we will see the spot market reach the heights of the Covid-19 pandemic, but it cannot be ruled out completely and the response of both shippers and carriers in the coming months could be decisive.

From a shipper perspective, they should keep their cool and refrain from pushing the panic button as we saw in the first four months of 2024 with the frontloading of imports – particularly into Europe. This increased demand ahead of the traditional Q3 peak season is one of the factors driving the market upwards.

From a carrier perspective, they need to do everything they can to ease port congestion and stop calling at the same transshipment hubs in Asia and Europe.

If this does not happen – and there is no change to the situation in the Red Sea – then spot rates will continue to climb.

Congestion pain points

Singapore, the world’s largest transshipment hub, has become an epicenter of disruption in the Far East but the port congestion toxicity has now spread to neighboring Malaysian hubs with Port Klang recording all-time-high congestion on 1 July.

Volumes at Tanjung Pelepas are reportedly up by 20% this year also, however MMC and APM Terminals, which run the port, have claimed the 1.078 million TEU in May 2024 was handled without any congestion.

The congestion in global supply chains is understandable in many respects because carriers have tried to reduce the impact of longer sailing distances around the Cape of Good Hope by stopping at fewer ports - but they almost all still stop at Singapore (or nearby).

For example, Hapag-Lloyd has restarted a China-Germany service (CGX) which has not run since the pandemic. This service only has five port calls – but one of them is Singapore.

With the average TEU of each ship arriving in Singapore rising by 18.5% from January to May, it is not surprising to see congestion has now reached its second-highest level ever, and just 1.9% shy of the August 2021 record of 2,997 TEU per containership arrival.

WRU wc 1 July Singapore throughput 2

Perhaps lessons are quickly being learned by some carriers. MSC launched a ‘premium service' called Britannia in mid-June and was originally scheduled to stop in Singapore on its way to Europe. However as of yesterday, 3 July, that is no longer the case with the service now sailing directly to Liverpool from China/Vietnam.

This is not a case of pointing fingers at carriers because reducing reliance on the world’s biggest transshipment hub is easier said than done. But the actions of carriers in the coming weeks and months may determine whether the current level of congestion lasts until the end of 2024 or beyond into 2025. – and whether freight rates will keep climbing.

Shippers can play their part

It is easy to say to a shipper ‘don’t panic’, but they are seeing average spot rates increase by more than 300% in a matter of months and their containers holding essential goods are being rolled.

It is therefore completely understandable that a shipper’s sole focus must be to protect their individual supply chains and business interests. They will do whatever they can to achieve this, whether it is frontloading imports or paying premium rates to guarantee space for their cargo on board ships.

However, these individual agendas do not help the market as a whole because they add to the disruption, amplify the sense of uncertainty and drive rates even higher. Shippers can play a part in helping to ease the pain points in global supply chains by remaining calm and collected.

We do not yet know how high spot rates will climb – and we can expect an impact on the long term market. If shippers do want to wrestle back some control over the situation, then they should keep as many options open as possible.

For example, if you are a European business and have the option to import certain goods from suppliers in the Far East or North America then you should consider both. At the very least you may wish to switch some of your imports away from the Far East to build some resilience in supply chains (if you have the flexibility to do so).

Shippers can also consider whether the actions they took in the first four months of the year to frontload imports and build up inventories has left them in a satisfactory position. If so, then perhaps they can approach the next few months with a greater level of calmness.

Xeneta Ocean Outlook 2024 (mid-year update)

The ocean container shipping market has been radically altered in 2024 due to the impact of conflict in the Red Sea region, with soaring freight rates and port congestion.

Xeneta has therefore published an updated Outlook report for 2024 to provide the latest assessment of the market. As well as the impact of the Red Sea conflict, the latest Outlook report includes other potential disruptions on the horizon such as the threat of strike action at ports on the US East and Gulf coasts and further tariffs on China imports in the event of a Trump presidency.

To download your copy of the Xeneta Ocean Outlook 2024 report click here.

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