News / Rivalry between carriers and forwarders could drive Gulf rates down

Competition between carriers and forwarders could be set to drive Gulf rates down, according to Drewry, and the analyst advised that now was still a good time to bid for some major lanes.  

But, during a recent webinar, senior manager of container research Simon Heaney cautioned against assuming a sustained rate surge. 

“Disruption is generally perceived as being supportive for carriers. However, not all disruption is equal,” he said.  

“Unlike during Covid… the current conflict carries a meaningful downside risk to demand also.”

That distinction was central to Drewry’s rate outlook, he explained. While spot rates on Gulf-linked trades have already spiked sharply – more than doubling in some cases and rising as much as three- to four-fold on routes such as China to Jebel Ali via Khor Fakkan – the broader trajectory would depend heavily on how long disruption in the Strait of Hormuz persists. 

Under Drewry’s base case, in which disruption lasts until the end of June, the impact on rates “is going to result in little more than a temporary spike in freight rates driven by higher fuel surcharges”, Mr Heaney said. 

In this scenario, elevated bunker costs, already up some 60-80% globally, would be the primary driver of higher freight rates, rather than structural supply-demand imbalances. Carriers have already introduced emergency surcharges, and further increases are likely if fuel markets tighten. 

However, a more prolonged disruption presents a starkly different outlook. If the crisis extends for up to a year and pushes oil prices towards $140-$150 per barrel, Drewry expects “a significant macroeconomic shock” that would ultimately suppress freight rates and Mr Heaney warned of “a toxic mix of energy and food shortages, rapid inflation and very possibly recession in import dependent economies”.

In such a scenario, any initial rate gains driven by disruption and cost inflation could be eroded by weakening demand. Drewry estimates global container port throughput growth could fall to between 0.5% and 1.3%, down sharply from earlier forecasts. 

Operational responses by carriers may also influence rate dynamics. To manage rising fuel costs, lines are expected to increase slow-steaming, effectively reducing capacity and putting upward pressure on rates beyond the Middle East trades. At the same time, network disruption, reliance on alternative hubs, growing congestion in parts of the Middle East and South Asia and longer routings would increase costs system-wide. 

Yet Drewry MD Philip Damas suggested that competitive pressures could cap these increases over time, explaining: “It’s getting much, much more expensive to sell the Gulf. But looking ahead, we expect that competition between carriers and forwarders will drive these Gulf rates down.” 

He advised: “It still makes sense for shippers to go to bid now and expect lower contract rates on last year, despite all the geopolitical complications. 

“We run some tenders on behalf of shippers, and I can confirm that current tenders are yielding good results on transatlantic and other trade routes. You may need to have to place on higher bunker charges initially, but you secure lower base rates on these trade routes, so the overall picture of supply and demand this year being more favourable for shippers is still true.” 

But he warned: “There may be a different treatment for rates or lanes to the Middle East, because now they are so disrupted, it’s probably better to exclude them from bid.”