Shipping rates back to epidemic highs?
The Red Sea crisis continues to escalate, hitting the global logistics industry. Shipping consultants predict that freight rates may return to the high levels seen during the epidemic. Although freight rates are continuing to rise, Xie Zhijian, former chairman of Yang Ming Marine Transport, is cautious.
He pointed out that during the epidemic, the two U.S. presidents, Donald Trump and Joe Biden, jointly distributed five trillion dollars in grants, an initiative that greatly stimulated the U.S. public's consumption and home purchasing spree, which led to an oversupply of sports equipment, bicycles, electronics and other commodities. Importers have stepped up their imports in response to market demand, while serious congestion has occurred at ports due to dockworkers' lack of work caused by the epidemic, and these factors have combined to push freight rates soaring.
However, Tse Chi-kin believes that the situation has now changed. With the reduction in grants, the population's consumption patterns have begun to shift and demand for goods is no longer as strong as it was during the epidemic. Although the immediate Red Sea crisis has led to vessel detours, capacity is gradually being replenished with the delivery of new vessels, making it unlikely that freight rates will continue to soar significantly, much less return to the level of as much as $15,000 to $20,000 per TEU during the epidemic. Industry executives, including Yang Ming Shipping, also generally agree with this view that freight rates are unlikely to return to the high point of the epidemic.
Industry insiders point out that the demand for medical supplies, household goods and sports equipment during the epidemic was rigid and significantly different from the current market situation. In particular, as the impact of the epidemic gradually waned, the public's consumption pattern shifted to catering, tourism and other services, thus reducing the demand for goods compared to the epidemic period. In addition, industry insiders expressed concerns about the purchasing power of end consumers, which may limit the continued rise in freight rates, and estimated that there will be a ceiling on this wave of price increases, and it is unlikely that the high prices seen during the epidemic will be repeated.
According to DHL ECOMMERCE's latest Global Online Shopper Trends 2024 report, which is based on an in-depth survey of 12,000 consumers in 24 key markets around the world, today's online shoppers are particularly sensitive to the cost of shopping. Particularly when it comes to choosing a delivery method, they tend to look for options that are reasonably priced, flexible and convenient. High shipping costs have become a key factor preventing shoppers from completing their purchases, with up to 41 per cent of shoppers abandoning their purchases due to high shipping costs, according to the survey data.
Lars Jensen, CEO of Vespucci Maritime, suggested two possible directions for the container shipping market. He pointed out that with some ships currently waiting up to a week in major ports and massive congestion in the western Mediterranean, the market seems to be repeating the mistakes made during the epidemic. In the most unfavourable scenario, port congestion could lead to a 14 per cent reduction in capacity. At the same time, however, there is a huge demand boom in the market, which is further pushing the already capacity-starved supply chain to increase production.
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Lars Jensen believes that the current situation could be just a very early sign of the peak season. If this speculation holds true, then the demand boom may abate as we move into early July and the market will get some respite, or at least freight rates will reach a ceiling.
But on the other hand, if the current demand boom is more than just an early peak and signals stronger long-term demand, then freight rates levels are likely to continue to rise and may even attempt to reach or exceed the records set during the epidemic.
However, when asked about the specific likelihood of this happening, Lars Jensen said he was unable to give a firm percentage as there are many uncertainties and variables involved in this forecast.
