Dramatic increases in FEU and TEU ocean container market spreads – key considerations for shippers

Spiralling ocean container shipping freight rates dominate discussion in the wake of major events such as the Red Sea conflict – but beneath these easy-to-observe headline figures lie many layers of complex market dynamics and indirect pricing impacts.

One such market dynamic is the spread in cost between shipping an FEU (40ft shipping container) and a TEU (20ft shipping container), which has seen dramatic developments in 2024.

Xeneta data includes freight rates for shipping both 40ft and 20ft containers and this blog will focus on the fronthaul trades from Far East to Europe.

On July 1, the FEU-TEU spread hit a 2024 peak of USD 2 354 on the Far East to Mediterranean trade. The peak on the Far East fronthaul to North Europe happened a little later on 15 July, reaching USD 3 596.

On 13 August, the difference between the spreads on these two trades reached USD 1 407, which is the highest level in almost two years.

Any perceived logic that the cost of an FEU is simply double that of a TEU clearly does not apply. There is no such thing as a fixed spread or ratio in a dynamic and competitive market

While these less obvious market developments do not receive the same limelight as headline-grabbing statistics such as global spot rate increases, they can be of much greater significance for individual shippers and freight forwarders.

What are the implications of a fluctuating FEU-TEU market spread?

The FEU-TEU spread can have a serious financial implication, especially for index-linked contracts.

Using the trade from the Far East into North Europe as an example, average FEU spot rates have remained less than double the TEU rate throughout 2024 - even when the spread was at its highest in July - meaning shippers moving 40ft containers against a TEU index would have been paying too much, under the agreement that one FEU would equal the price of two TEU.

Moving a 40ft container against a TEU index at the peak of the FEU-TEU spread for the Far East to North Europe trade lane on 15 July would have seen a shipper paying an additional USD 1 409, as shown in the table below.

Why has the FEU-TEU market spread increased?

Prior to the Red Sea disruption wreaking havoc across global ocean supply chains in 2024, trade lanes from Asia to North Europe and Mediterranean saw a close and steady relationship between FEU and TEU average spot rates.

As Houthi militia escalated attacks on ships in the Red Sea region in December 2023 and the majority of ocean container carriers deemed the risk of transiting the Bab el-Mandeb strait to be too high, average spot rates increased dramatically.

Most business on the trades from the Far East to Europe is done using FEU containers, so it makes sense that a general market squeeze will make the preferred equipment type relatively more expensive. Therefore, within the overall average spot market rise, the FEU-TEU spread also developed significantly.

By mid-January 2024, the spread in shipping costs between a 40-footer and a 20-footer on both trades spiked at USD 2 000, after being little more than USD 500 a month earlier.

From that point on, a growing spread between FEU and TEU markets steadily emerged.

FEU-TEU spread comparison between trades

There are further nuances that shippers should be aware of. The FEU-TEU spread on these trades into North Europe and Mediterranean spiked twice in 2024 – firstly in January/February and again in July/August. However, it was only during the second spike that the spread into North Europe accelerated at a greater pace than into the Mediterranean.

The spread on these trades were identical in mid-January. However, 240 days later, by mid-August, the difference in the FEU-TEU spread into North Europe was USD 1 407 greater than into the Mediterranean. This is the largest difference in TEU-FEU spread between these two trades since the pandemic years.

Reasons for bigger FEU-TEU spread into North Europe

As port congestion in Singapore and transshipment hubs in Europe increased in April, May and June, so too did the FEU spot rates from the Far East into North Europe, climbing USD 5 360 between the end of April and mid-July (+165%).

Importantly in the context of FEU-TEU spread, this happened to a greater extent into North Europe than from the Far East to Mediterranean, where FEU spot rates ‘only’ increased by USD 3 904 (+94%) in the same period.

A similar pattern was evident in TEU spot rates on these trades, but rising from a much lower price level, with the spread widening up until the mid-August peak.

Falling spreads ahead?

Container shipping spot rates seem to have peaked in the first half of July, so it is likely a softening market will also bring about a lower FEU-TEU spread on the Far East fronthaul trades into Europe (albeit there will still be some market turbulence along the way).

It may eventually also see the relationship between the two trades get back in sync.

The fact the price differential between these FEU and TEU markets is not stable means the potential financial impact varies and why it is so important to continuously monitor costs across trade lanes and equipment types.

For example, on 30 April, a shipper moving a 40ft container from the Far East to North Europe against a TEU index would have overpaid by USD 455 – far less than the additional USD 1409 they would have paid during the peak in July

Shipping on the right index-linked contract

Absolute shipping costs as well as relative levels should always be analysed thoroughly and monitored. There is risk to manage, but there are also procurement gains to made if contractual terms and procedures are optimized.

A shipper moving a 40ft container against an index linked to the TEU market may be offered a discount to compensate for the price differential – but, as has been clearly demonstrated, the delta is highly volatile. In this kind of market volatility, what discount would need to be applied?

It is therefore important for shippers to transport containers against the correct index, which means having access to both FEU and TEU market data.

This topic was covered in more detail in a recent Xeneta blog, which can be read here.