News / Box rates ease, but 'things may get worse for shippers before they get better'

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It appears increasingly likely that the main east-west container trades have now entered an early peak season – which, combined with disruptions such as equipment shortages, port congestion and schedule volatility, has caused the recent spike in spot rates.

There were tentative signs this week, however, that the pressure might be easing.

After three weeks of consecutive double-digit rate increases, this week saw low-to-mid single-digit rises, indicating that the upward spiral has begun to taper off.

Both the Drewry World Container Index’s (WCI) Shanghai-Rotterdam leg and Xeneta XSI’s Asia-North Europe saw spot rates rise 5%, to $5,270 per 40ft and $5,280 per 40ft respectively, while on the transpacific, the WCI’s Shanghai-Los Angeles leg was up 2%, to $5,390, and the XSI rose 4.5%, to $5,170.

“The current spot rally on Asia-North Europe will start to reverse in June, while the transpacific will stabilise or soften in the second half of 2024,” predicted Drewry senior manager of container research Simon Heaney in the company’s Freight Loop briefing

Xeneta’s head analyst, Peter Sand, agreed that this week’s market may appear a silver lining, but warned that some shippers could continue to encounter supply chain issues.

“While average spot rates will increase again on 1 June, the growth is not as rapid as it was during May, which may hint towards a slight easing in the situation,” he said.

“This cannot come soon enough for shippers who are already having their cargo rolled – even for containers being moved on long-term contracts signed only a matter of weeks ago.

“Carriers will prioritise shippers paying the highest rates. That means cargo belonging to shippers paying lower rates on long-term contracts is at risk of being left at the port. It happened during the Covid-19 pandemic, and it is happening again now.

“We are also seeing freight forwarders being hit with new surcharges and being pushed onto premium services to have space guaranteed onboard ships. In such cases they have no other option than to pass these costs on directly to their customers.”

And he added: “Carriers will continue to push for higher and higher freight rates, so the situation may get worse for shippers before it gets better.”

The strongest price rises were seen on the Asia-US east coast trade, the XSI showing a 10% rise, to $7,258 per 40ft, and the WCI rising 6%, to $6,835.

Meanwhile, the WCI’s Shanghai-Genoa was up 4%, to $5,693 per 40ft.

Both analysts agreed that the most likely cause of the recent surge was shippers in both Europe and North America front-loading imports normally shipped later in the year. A shipper survey by Drewry last week found that 40% of respondents had seen an increase of traffic this year.

“While it’s not the majority, the percentage is large enough to suggest that trade might be growing faster than expected,” said Mr Heaney.

“The vast majority of respondents said their inventory levels were at target, so we can probably rule out abnormal restocking as a cause of the demand surge.

“However, when we asked about forward shipments, 19% on the eastbound transpacific and 26% on Asia-North Europe had made peak season shipments early, so that has become a factor,” he added.

However, Mr Heaney suggested the most important factor was likely to be the operational constraints carriers have faced.

“Capacity has been the same as before the Red Sea crisis, but schedules have been inconsistent, with a large number of blanked sailings, because carriers haven’t been able to find suitable tonnage in the charter markets to plug the gaps [in their schedules],” he explained.

Should demand persist into the traditional third-quarter peak season, the best hope for shippers will be the continuing flow of newbuildings out of Asian shipyards.

“Another 2m teu will arrive before the year is out, which will improve the flow of containers back to Asia, while the weather won’t always be so bad,” he said.

Mr Heaney also raised the interesting point that one of the reasons the pricing surge had caught the market offguard was that, while data for shipping capacity is updated on a near-daily basis, the same  is not true of demand data, with the latest statistics only up to March.

“There’s an information black hole, and in the data vacuum lies an opportunity for misinformation about a return to pandemic market conditions to be spread,” he noted.

“The available demand data confirms that loaded shipments are ahead of projections, but the market has handled this level of volumes before – we are not in uncharted territory here.”