Freight rates plummeted by more than 40%, and shipping companies began to take action
Since the beginning of this year, the freight rate of the world's major trade routes seems to be on the slide, all the way down. The container Freight index (SCFI) of the Shanghai Shipping Exchange, a barometer of the maritime market, stood at a high of 2,505.17 points on January 3 this year, but by Friday (7), it had fallen sharply to 1,436.30 points, a drop of 42.67%, which is jaw-dropping. Especially the three important routes of West America, East America and South America, are the hardest hit areas, with a drop of between 45% and 54%, like an avalanche out of control. In the face of such a severe situation, the shipping company did not sit still and began to sell!
Specifically, in order to curb the continuous decline in freight rates, shipping companies have taken a number of measures. In addition to the continuous reduction of 7 percent in the next five weeks, it has also adopted strategies such as replacing large ships with small boats and delaying the opening of new routes. However, if these measures still fail to stabilize rates, shipping companies may further idle vessels.
In the next five weeks, 47 of the 715 scheduled flights on the main route between Europe and the US will be cancelled, Mr Delury predicted. Of these, 43 per cent were cancelled for trans-Pacific eastbound, 30 per cent for Asia-Northern Europe and the Mediterranean and 28 per cent for trans-Atlantic westbound.
A new report from Linerlytica, a consultancy, points out that shipping companies have begun to take action to curb capacity growth in order to reverse the recent decline in freight rates. For example, industry leader Mediterranean Shipping (MSC) has confirmed its exit from the trans-Pacific Mustang route and is redeploying its largest 24,000 container ships from the Asia-Northern Europe route to the Mediterranean and West Africa route. In addition, Ocean Alliance postponed the launch of its new Asia-Northern Europe route, which was originally scheduled for March, while Premier Alliance is also expected to delay the launch of two Pacific routes, which were originally scheduled for May.
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According to MDS Transmodal, carriers made the biggest capacity cuts on the Pacific route compared with February, with a 5 per cent reduction this month. Total capacity in March this year was 1.686 million boxes, down 81,000 boxes from the previous month, but still 16 percent higher than the same month last year. This is seen as a possible precursor to further significant capacity cuts to come.
From the end of 2020 to the end of 2024, global container capacity increased by more than a third, while global freight volume increased by less than 10%. The industry points out that such a large increase in capacity, whether it is port congestion, the pandemic or the Red Sea crisis, can only absorb some of it. As new ships are launched, the problem of overcapacity is growing.
Whether shipping companies will idle ships next remains to be seen. At the same time, the industry is also worried that tariffs will curb the flow of goods. SCFI data show that on January 3 this year, the freight rate per box of the European line was $2,851, and by the 7th of this month, it had fallen to $1,582, a drop of 44.51%. The U.S. West line fell from $4,997 to $2,291 per large box, a drop of 54.12%; The U.S. Eastern line fell from $6,481 per large box to $3,329, a drop of 48.13%.
