October’s dip in freight rates has prompted carriers to announce an increasing number of blank sailings for November, a strategy that appears to be working out well, as freight rates have risen consecutively for the first two weeks of November, post-Golden week.

The Shanghai Containerized Freight Index (SCFI) finally caught up with the recent spot rate hikes, rising by 11.8 percent on 14 November after two weeks of lackluster gains, the largest improvement since the start of 2024.

Apart from additional blank sailings, the bump in freight rates has partly been attributed to strong consumer demand. U.S. imports from East Asia were up 18.7 percent year-over-year in August and increased by 16.6 percent over the first eight months of 2024 compared to 2023, noted Maritime Forecasting and Strategic Consultancy (MSI).

European imports stood 14.5 percent higher year-on-year in August and 7.7 percent higher than earlier in the first eight months of 2024. The analyst reported that the major non-mainline and intra-regional trades also recorded positive year-on-year growth.

Niki Frank, CEO of DHL Global Forwarding Asia Pacific, confirmed that despite some contractionary macroeconomic indicators, ocean freight demand held up well through Q3.

“We saw a lot of early shipments this year due to supply chain choke points, so we had an early peak season,” he explained. “But overall, volumes have been healthy, and we are seeing brisk demand since Golden Week at the start of October.”

Excess ship supply

The prime reason for the drop off in rates in October was the excess supply of shipping capacity.

MSI reported that the growing supply of new ships is finally catching up with demand, even with the Cape of Good Hope diversions in place.

“New deliveries in the first nine months of 2024 stood at 2.3 million TEU, slightly more than 2024’s total, while demolitions stood at a subdued 72,000 TEU. A further 1.4 million TEU is expected in the coming three quarters,” reported MSI.

According to Sea-Intelligence, another consultancy, carriers deployed 19 percent more capacity in the third quarter than in Q2, and 17 percent more compared with the same period last year.

The approach of new fleet deliveries approach also means that the scrapping of aging fleets is on the horizon. The November issue of the DHL Ocean Freight Market Update noted that the top 10 ocean carriers had 431 container ships on orders, adding up to a total of over 5.9 million TEU capacity.

But not all orderbooks are meant to expand carrier fleets. Some carriers needed new tonnage to rejuvenate their fleets, replacing aging fleets instead of growing them. A total capacity of over 2.6 million TEU out of the current active capacity used by carriers is made up of ships that were over 20 years old. Replacement tonnage varied among carriers, with Mediterranean Shipping Company (MSC)’s orderbook replacing 60 percent of its aging vessels.

“The demand has been strong through the year across the main trades out of Asia. For the month of November, many carriers have announced increased blank sailings, putting some upward pressure on rates, which had been softening over the past few months on the spot markets,” said Praveen Gregory, Senior Vice President, Ocean Freight, DHL Global Forwarding Asia Pacific.

Looming supply chain disruptions

One caveat to this assumption is the threat of further supply chain disruption sucking up some of this excess capacity. The International Longshoremen's Association (ILA) temporarily halted container traffic on October 1, closing major U.S. East and Gulf Coast ports. Although the union secured a 62 percent pay raise over six years and agreed to a temporary contract extension, its ongoing dispute with the United States Maritime Alliance (USMX) remains unresolved, especially around automation.

The contract extension expires on 15 January 2025, setting up a potential second strike that would coincide with peak Chinese New Year demand.

"In early October, the closure of U.S. East and Gulf Coast ports was averted, but this conflict remains unresolved and is a critical risk factor for early 2025," noted Gregory. “American ports are behind in terms of adopting technology and automation, and if they remain at a similar level of efficiency for the next five to 10 years, they will struggle to keep up with global standards. U.S. ports could become increasingly congested and less competitive, forcing higher operational costs, and this cost of the inefficiency will eventually go to consumers, in the form of higher freight or terminal handling charges.

With a U.S. presidential inauguration set for 20 January, the timing adds additional complexity to an already tense situation.

Proposed tariffs by Trump include a universal tariff of 10-20 percent on all imports to the U.S., as well as an additional tariff of 60-100 percent specifically on imports from China. Trump’s tariffs are expected to impact end consumers in FY’2026, depending on the new administration’s policies.

Trump’s campaign promises on tariffs are already creating “market panic,” particularly in the U.S. fashion industry.  U.S. importers have begun accelerating orders to avoid disruptions and manage risks, with pre-emptive measures against labor strikes, tariff uncertainties, and geopolitical tensions.

With rising consumer costs, the tariffs may ultimately drive demand and volumes down, potentially impacting GDP negatively. When that happens, a knock-on impact on other global trade industries is also expected. DHL’s November Ocean Freight Market Update notes that frontloading is expected due to the early Chinese New Year at the end of January.

“With President Trump’s victory in the U.S. elections, we have seen increased customer enquiries, especially if they are importing from China. However, it is still too early to say whether this is the trend or only individual customers,” said Frank. “Additionally, service disruptions may occur during the transition to the new ocean shipping alliances at the start of the year.”

In January 2024, Hapag-Lloyd AG (Hapag-Lloyd) and Maersk announced a new long-term operational collaboration under the name of Gemini – referred to as the “Gemini Cooperation”. The operational collaboration covers the Ocean freight network on major East West trades, including Asia to the U.S.; North Europe; Mediterranean; and the Middle East, beginning in February 2025.

“As with any new service or alliance, we expect that it will take the Gemini Cooperation some time to stabilize its operations. But the Gemini cooperation’s whole value proposition is improved schedule reliability, so eventually, that is what their service loop will be focused on, and we should see improvements in schedule reliability toward mid-year in 2025,” said Gregory.

Carrier responses to rate pressure

In the face of falling spot rates, carriers are expected to cut capacity further by blanking sailings as they digest a demand dilemma noted by Sea-Intelligence. It found that the disparity between backhaul and fronthaul demand for container slots has worsened since the pandemic. Backhaul vessel utilization, which averaged around 50 percent pre-Covid, had fallen to 40 percent as of August 2024.

This imbalance primarily affects deep-sea trades such as Asia-Europe and the trans-Pacific. As a result, either head-haul trades will increasingly bear higher costs to cover empty container repositioning or backhaul shippers will face increased rates due to the limited supply of paying backhaul freight, said the analyst.

“Depending on their market strategy, carriers will attempt to recover by offsetting this cost imbalance on either the main shipping route for outbound trade or the return shipping route on inbound trade,” concluded Gregory.

With multiple factors at play—growing ship supply, possible new tariffs, regional labor disputes, and imbalances in backhaul capacity—the global freight market is likely to remain volatile well into 2025. As DHL’s November Ocean Freight Market Update concludes, with so many disruptions still threatening supply chain efficiency, freight rates are not expected to return to pre-pandemic levels in the immediate future.