For July and August, container shipping freight rates are expected to peak. Some analysts suggest that these rates will reach levels similar to those seen during the pandemic, although for a shorter period. Peter Sand, Chief Analyst at Xeneta, examines the options for the market to avoid these increases.
Average spot rates from the Far East to Northern Europe have continued to rise in early July, reaching $7,897 per FEU, which is 53% of the way to the peak of $14,783 per FEU reached during the pandemic in January 2022. On routes from Asia to the U.S. West Coast (USWC), rates reached $7,648 per FEU, and to the U.S. East Coast (USEC) $9,146 per FEU, reaching 72% and 79% of the way to their peak levels, respectively.
The increase in spot rates from Asia is particularly notable compared to the values recorded on December 14, before the Red Sea crisis worsened. For the USWC, the increase is 366%, while for the USEC it is 268%.
Peter Sand considers it unlikely that the peaks seen during the COVID-19 pandemic will be reached again, though he does not completely rule out the possibility. He notes that everything will depend on the actions of the shipping lines and cargo owners.
Shipping lines must work to avoid port congestion and reduce calls at transshipment hubs in Asia and Europe to prevent saturation. If they fail to do so, and the situation in the Red Sea remains stable, spot rates will continue to rise.
Meanwhile, cargo owners and importers should remain calm and avoid hasty actions, unlike in the early months of 2024, when the premature concentration of imports, especially from Europe, contributed to the current rate increases.
Congestion expands
The congestion that began intensely in Singapore has now spread to neighboring hubs in Malaysia. For example, Port Klang recorded its highest level of congestion on July 1, while Tanjung Pelepas also reported a 20% increase this year. However, MMC and APM Terminals, which operate this port, assure that in May 2024, 1.078 million TEUs were handled without congestion.
This congestion is due to the actions of shipping lines that, in an attempt to reduce the impact of longer sailing distances around the Cape of Good Hope, have called at fewer ports. However, almost all these lines have services that pass through Singapore or its vicinity. An example is Hapag-Lloyd, which resumed its ‘CGX’ service on the China-Germany route, which had not operated since the pandemic. This itinerary includes only five calls, one of them in Singapore, which is a concerning sign.
Additionally, given that the average TEUs per vessel arriving in Singapore increased by 18.5% from January to May, it is not surprising that port congestion reached its second-highest level in history, just 1.9% below the August 2021 record of 2,997 TEUs per call.
MSC, upon receiving this message, decided to skip Singapore in its premium ‘Britannia’ service starting July 3. Is this a positive sign? Perhaps.
Do not panic!
Peter Sand acknowledges that it is difficult to ask importers not to panic when they see rates increasing by 300% in a few months and their containers left on the docks in the ports of origin. He understands that, in these circumstances, it is logical that they seek to protect their supply chains and commercial interests by advancing orders or paying higher rates to secure space on ships.
However, these individual actions only increase uncertainty and fees. Therefore, Sand suggests that cargo owners should keep as many options open as possible to regain some control over the situation. For example, if a European company faces problems in the Far East, it could divert some orders to North America to strengthen the resilience of its supply chains.
Furthermore, if some importers increased their stocks at the beginning of the year and achieved their goal, now would be a good time to reduce the pressure and face the coming months more calmly.
