News / Ocean capacity is rising, demand is cooling, and 'the market is starting to turn'

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Container spot freight rates on the main east-west ocean trades showed their first decline since the end of April – a first sign that the market is emerging from the peak season, at least in terms of pricing.

This week’s World Container Index (WCI) from Drewry saw Shanghai-Rotterdam drop 1%, to $4,873 per 40ft, while on the Shanghai-Genoa, the week-on-week decline was slightly steeper, at 3%, to end $6,300 per 40ft.

The decline came despite the fact that carriers had begun the week hoping new FAK (freight all kinds) rates, ranging from $7,900 to $8,500 per 40ft, introduced on Wednesday would help keep prices elevated.

However, in the early part of this week Linerlytica noted “aggressive rate cuts by Gemini partners triggering rival carriers to slash rates through the end of July”.

It added: “Hapag-Lloyd led the rate cuts last week with rates of below $5,000 per 40ft, which triggered Maersk and CMA CGM to cut their rates to $4,800-$4,900 per 40ft for sailings in the final week of July.

“Current carrier rate offers range widely, from $4,500 to $7,000 per 40ft, but are on a clear downward trajectory,” the Hong Kong-based analyst said.

Today’s Shanghai Shanghai Containerised Freight Index (SCFI) – which records rates quoted for the forthcoming week and, as such, indicates the behaviour of the following week’s WCI – recorded a 3.5% drop on its Shanghai-North Europe base port leg, to $5,422 per 40ft, and a 4.5% decline on its Shanghai-Mediterranean base port, to $6,358 per 40ft.

Whether the change in direction of rates is due to declining demand is unlikely, however, with large roll pools built up in China over the past 10 weeks still to be cleared.

Rather, suggested Xeneta’s senior shipping analyst, Emily Stausbøll, the main culprit was carriers introducing more capacity.

“The shift is driven by carriers continuing to ramp up offered capacity across the main fronthaul trades, and the front-loading demand that fuelled the spike beginning to ease,” she explained. “Shippers pulled forward volumes at the start of the peak season to avoid expected Q3 bunker adjustment factor increases and protect supply chains from the Middle East disruption rippling across global trades.

“The irony is that this front-loading contributed to a capacity squeeze that then pushed spot rates higher than they likely would have been otherwise.

“The front-loading means peak season effectively started in May this year rather than July, and, logically, it will also be over sooner in the absence of underlying growth in container shipping demand.

“This, combined with increasing offered capacity, is perhaps why we are starting to see a softening in rates,” she added.

According to Xeneta data, capacity offered by carriers on the Far East-North Europe was up 9.5% week on week, as per a four-week rolling average, and up 11% week on week on the Far East-Mediterranean trade.

A similar picture unfolded on the transpacific trades this week, with the WCI’s Shanghai-Los Angeles route decreasing 3%, to $6,272 per 40ft, while the Shanghai-New York leg was flat, at $7,879 per 40ft.

According to Xeneta, transpacific capacity into the US west coast this week was up 6.5%, compared with the week before, and up 15.4% into the US east coast.

However, with Drewry noting that nine blanked sailings are scheduled for the transpacific next week, “carriers’ proactive capacity management should prevent spot freight rates from falling significantly”.

Ms Stausboll agreed: “It is too early to call this a sustained decline and spot rates remain massively elevated compared with pre-crisis levels – Far East to US West Coast is still up 252% since the end of February.

“Increasing military strikes between Iran and the US, while not translating directly into higher freight rates, could also pause the softening if the situation deteriorates further.

“But the direction of travel is becoming clear: capacity is rising, demand is cooling, and the market is starting to turn,” she added.

However, on the transpacific the momentum could turn again, US west coast forwarder Freight Right observed, should the uncertainty around US tariff policies become clearer.

“The next two weeks are likely to determine the direction of the transpacific market – if tariff uncertainty is resolved with lower or eliminated duties, import demand could quickly rebound, potentially creating an extended peak season through August and September, and pushing ocean rates higher again.

“However, if tariffs remain in place or increase, market participants expect booking volumes to weaken further, putting additional downward pressure on freight rates,” it said.