Freight rates have skyrocketed for three consecutive weeks
The Drewry World Container Index (WCI) (as of May 9) suddenly jumped 16% week-on-week to $3,159/FEU. In the week ending May 16, it rose another 11% to $3,511 per FEU. As of May 23, WCI surged another 16% to $4,072/FEU, up 142% compared to the same period last year; This is 187% higher than the pre-pandemic average of $1,420/FEU in 2019.
Among them, routes departing from China have risen across the board. Shanghai-Rotterdam rose 20% to $4,999/FEU, Shanghai-Los Angeles rose 18% to $5,277/FEU, Shanghai-Genoa rose 15% to $5,494/FEU, and Shanghai-New York rose 13% to $6,463/FEU.
Drewry expects the surge in spot freight rates to abate in the coming months.
The spike in freight rates is similar to that in the early days of the pandemic
Shipping analyst Lars Jensen said spot freight rates have continued to grow sharply over the past three weeks, and shippers may wish to start preparing for the worse.
He pointed out that normally, when a shipping company announces a price increase, the impact is usually fully felt within a week or two. It is unusual for the rate to increase significantly for three weeks.
In January 2024, when the Red Sea crisis erupted, there was a similar sharp increase, but it quickly waned.
Apart from the Red Sea crisis, the only such increase was in 2020/2021, when the disruptions of the pandemic began to manifest themselves in the market, and then, on March 23, 2021, the Ever Given "stuck" in the Suez Canal, further exacerbated the disruptions.
In addition to the WCI data, there are market rumors that freight rates from Asia to the US East and the Caribbean are quoted between $10.000-$11.000/FFE. It is also unknown whether anyone has accepted these offers. After all, the WCI spot index is far from reaching this level, with spot freight rates from Shanghai to New York trading just below $6,650/FEU.
Based on this, it can be said that there are similarities between the present and the early days of the epidemic.
The core problem is that the detour of Africa has absorbed all the excess capacity in the market, resulting in almost zero ability to deal with any other disruptions.
At the same time, congestion at key Asian ports has been worsening and is now absorbing so much capacity that there is no longer enough capacity redundancy in the market, the same situation was during the height of the pandemic.
In the best-case scenario, it is likely to see the current surge in demand – which could bring the peak season forward – and then weaken and port congestion gradually improves, which will lead to a slow cooling of the market. Conversely, if demand continues to surge and port congestion does not improve, freight rates will continue to rise ......
At the same time, rising freight rates have made the charter market hot. Not only are small container ship rentals starting to rise at the moment, but independent container ship owners MPCC can now request charter contracts for up to two years at higher rates, with CEO Constantin Baack bluntly saying that it has not seen such strong demand for months.
"It's clear that the charter market is changing," he said. For small container ships, the two-year charter period is certainly something we have never seen in the past 8-12 months. ”
During the epidemic, we have also seen a large number of small container ships cut into ocean routes. At present, Hapag-Lloyd has just chartered a 3500TEU container ship and put it into the Asia-Europe route, passing through West Africa.
Overall, the current development of the container shipping market seems to be exactly the same as what was seen during the capacity shortage that began in late 2020.
This is a surprise for the entire container shipping market! A month ago, no one would have expected such a sudden surge......
In any case, while forecasting the course of the second half of 2024 may be fraught with unprecedented uncertainty, it may be time for shippers to start preparing for a worse scenario.
