What will stop ocean freight container spot rates reaching pandemic levels?

Photo: Freepik

The ocean container shipping market has been radically altered in 2024.  Spot rates on major trades out of the Far East have increased by more than 300% between December 2023 and June 2024.

The current average spot rate of $7,648 from the Far East to US West Coast is an increase of 366% since 14 December last year, before the escalation of conflict in the Red Sea. The average spot rate of $9,146 into the East Coast is an increase of 268% in the same period

For much of Q2 2024, Singapore, the world’s largest transhipment hub, was an epicenter of port congestion in the Far East. While actions from carriers to spread their cargo throughout the region has helped to ease the situation in Singapore, neighboring hubs continue to shoulder additional loads – with Port Klang recording all-time-high congestion on 1 July.

Shippers are working proactively to avoid repeating the supply chain chaos witnessed during the pandemic by frontloading imports – with some paying premium rates to guarantee space for their cargo on board ships.

This has seen peak season arrive months early, adding additional pressure to overcrowded and disrupted cargo networks. We’re already seeing importers shipping cargo for the Christmas period in May.

As Emily Stausbøll told the BBC News on 10 July: “We’ve seen record high volumes in May, and that’s not because there’s a huge underlying demand over the summer for goods. It is partly to make sure that you have what you need come Christmas.”

While avoiding operational disruption is a key incentive, Ms Stausbøll notes that geo-political events and the threat of tariffs on Chinese imports are also factors in increasing demand.

The intensity behind recent market movements has been driven by the impact of conflict in the Red Sea region, creating ripple effects across global supply chains. But there’s a behavioral aspect to these market movements that shippers have control over and can help prevent ocean freight container spot rates spiraling towards pandemic levels.

Response of carriers and shippers could be pivotal

As the data currently stands, it is unlikely we will see the spot market reach the heights of the Covid-19 pandemic. That said, it cannot be ruled out completely, especially given the unexpected and dramatic nature of the current market spike.

What could tip the balance is how both shippers and carriers respond in the coming months.

From a shipper’s perspective, we’re seeing an increase in frontloading imports ahead of the traditional Q3 peak season, which in turn is driving the market upwards. While shipping early can help protect business operations, this advantage is diminished when the whole market starts shipping early too. What we see instead are heightened freight rates and premium surcharges. Shippers also need to consider the cost of warehousing and containers to keep inventory on standby for months longer than planned.

From a carrier perspective, they can ease port congestion by diversifying which transhipment hubs they stop at in Asia and Europe.

For instance, on 3 July, MSC announced it was revising its ‘premium service’, called Britannia (announced in mid-June) to sail directly from China/Vietnam to Liverpool, instead of via its scheduled stop in Singapore on its way to Europe. Actions such as these may determine whether the current level of congestion lasts until the end of 2024 – and whether freight rates remain elevated.

Prepare for the second half of a troubled year

Back in October 2023, Patrik Berglund, CEO and co-founder at Xeneta, stated that while average spot rates on major trades out of the Far East had fallen to levels not seen since the start of 2019, another Black Swan event could radically alter the global picture, meaning shippers would have to once again pivot supply chain strategy and contend with carriers which no longer viewed contracted rates as profitable.

To document just how much the market has changed since October, Xeneta has published a 2024 Outlook Mid-Year Update.

This report provides the latest assessment of the ocean freight market and offers suggestions on actions you can take to mitigate risk and find opportunity amid the chaos. As well as the impact of the Red Sea conflict, this mid-year update also includes other potential disruptions on the horizon – such as the threat of strike action at ports on the US east and Gulf coasts and further tariffs on China imports, in the event of a Trump presidency.

To gain access to these all-important insights, download your copy of the Xeneta 2024 Outlook Mid-Year Update here.