Ocean freight rates stabilizing at high levels
Stable but high. That is the consensus for ocean freight rates and demand as we enter the traditional peak season.
While demand is a mixed bag, given some easing of port congestions on the Transpacific and Asia-Europe side of things, the overall level is expected to remain high throughout Q3 this year. This is more so for intra-Asia lanes as shippers are clearing backlog.
Peak season surcharges are being introduced through June on all Asia outbound trades, and steep increases in rates are apparent on secondary trades such as intra-Asia.
Shipping diversions impact
All eyes remain glued to the Red Sea, where Houthi attacks continue to dictate containership deployment strategies as vessel diversions around southern Africa suck in more capacity.
Liner networks have been coping with port congestions, which was at an 18-month high, with diversions leading to a 17 percent deployed capacity rise on the Asia-Europe route. On top of this, persistent equipment issues, especially in Asia, created bottlenecks.
“Shippers have brought forward orders in light of the Red Sea crisis. Concerns around port congestion and possible strikes or union action at ports in Europe and the United States (U.S.) over the summer and into the peak season add to the capacity pressure,” said Niki Frank, CEO, DHL Global Forwarding Asia Pacific. “This is creating an elongated peak season and tight ocean freight markets with new capacity additions quickly absorbed by southern African diversions.”
Carriers have also stopped taking additional bookings out of Asia to clear the current backlog. Coupled with the diversion of larger vessels to the Asia-Europe lanes, leaving smaller ships to service the outbound Asia routes, capacity out of Asia is facing a crunch. “Shippers can tap into our strong network that works with multiple carriers, thus reducing the risks of disruptions when carriers stop accepting bookings or activate blank sailings,” said Praveen Gregory, Senior Vice President, Ocean Freight, DHL Global Forwarding Asia Pacific.
Stable but high rates likely to continue
Drewry’s World Container Index shows signs of stabilization in ocean freight rates. Based on data from 1 August, its composite index saw a 1 percent week-on-week drop. Softening spot rates are seen across the board, with the Shanghai-Rotterdam and Shanghai-New York routes lowering by 1 percent week-on-week. Stability is notably apparent for Rotterdam-Shanghai, Shanghai-Genoa, and Los Angeles-Shanghai routes, all of which saw no significant changes in the week-on-week rates.
DHL’s August Ocean Freight Market Update noted that the SCFI echoes a similar stable trend. Rates are softening, albeit high on the Transpacific and Asia-Europe trade lanes, while Far East Westbound route remains relatively flat.
Despite the upsides from these stable trends, freight rates are expected to remain at an elevated level until the Golden Week. “Secondary trade lanes, such as Asia to Oceania, will see continued increases as inventory backlog is cleared,” noted Gregory.
Mixed demand signals across regions
DHL’s August Ocean Freight Market Update expects demand from Asia outbound lanes will remain strong for Q3 2024. India & Brazil also see a strong increase in outbound demand, leading to increased rates and equipment shortages.
“We are closely monitoring whether capacity is being shifted to strong outbound lanes, which may create challenges on lanes that are currently balanced in terms of capacity,” said Frank. “We expect new capacity additions, once accurately directed, will eventually balance out the varying demands across different markets. In the meantime, we are proactively working with our customers and collaborating with carriers to ensure we can meet our customers' needs across all routes.”
Accenture Cargo said market demand had increased by around 5 percent in the first half of the year. Meanwhile, the market remains nuanced, with demand signals still hazy. S&P Global Market Intelligence research noted that manufacturing new orders are at their highest level since March 2022, but growth is inconsistent by region, with Europe lagging and Asia leading.
The global Purchasing Managers’ Index (PMI) in June shows signs of weakening, indicating a slowdown in retail activity growth. Retailers’ revenues are forecasted to grow by just 4.2 percent in the fourth quarter of 2024. Global trade growth is expected to increase slightly to 4.8 percent in the fourth quarter, led by electronics and capital goods.
S&P added that significant risks remain for the smooth running of the peak shipping season, which covers 28.8 percent of mainland Chinese exports to the U.S. and European Union (EU). It predicted a wave of peaks varying by sector from August to November, while adding that there were already signs of congestion and cargo disruption, with shipping rates surging from a second-quarter slump. Risks in the peak season include extreme weather conditions, conflict, and trade protectionism. Union actions on the U.S. East Coast are bringing further uncertainty to the situation, with strikes likely to happen, thus impacting port activities.
Geopolitical factors at work
S&P said regulatory risks from recent elections should prove manageable, with indications in India and Mexico so far leading to policy continuity.
However, European Parliament election results have raised uncertainties over the implementation of carbon border rules, deforestation regulations, and tariffs on mainland Chinese electric vehicles, with retaliatory Chinese tariffs on EU exports a possibility.
“The U.S. election in November brings further uncertainty regarding tariff policy, shipments of high-tech goods, and trade on the Mexico-U.S. border,” it added. “There is also a list of hybrid operational-geopolitical risks ranging from conflict in Ukraine to shipping in the South China Sea.”
Options to offset such operational risks include alternative or multimodal supply chain network designs, such as including air freight, switching ports, and altering upstream sourcing.
“Ahead of elections, potential changes in U.S. Customs rules are also a concern, but we will be paying attention to any regulations that could be implemented following the elections, and we will help our customers adapt accordingly with the most suitable solutions to transition through or overcome any shipping challenges,” said Frank.
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