The spiralling ocean container shipping market of recent months appears to be reaching a peak – but how is it is possible to tell and where does it go from here?
The latest Xeneta data shows average spot rates from the Far East to US East Coast stood at USD 10 078 per FEU (40ft equivalent shipping container) on 17 July. Into the US West Coast, average spot rates stood at USD 7 917 per FEU.
This leaves average spot rates on these major fronthaul trades up more than 140% since the end of April when the latest market spike began.
There has also been a spike on fronthaul trades from the Far East into North Europe and Mediterranean, where average spot rates have increased by 163% and 95% respectively since 30 April to stand at USD 8 499 per FEU and USD 8 127 per FEU.
Given the magnitude of these increases, if the market is reaching a peak, how do we know?
A flat market mid-high
The Xeneta market ‘mid-high’ identifies the spot rates being paid by shippers in the 75th percentile of the market.
Looking at the Far East to US East Coast trade, while the average spot rate ticked up slightly in mid-July, the market mid-high has remained flat.
This is a crucial aspect of a market nearing its peak because it indicates a growing number of shippers and freight forwarders no longer feel they need to pay higher and higher spot rates to ensure their containers are transported.
The impact of a cooling upper end of the market can be seen in a slowing down in average spot rate growth. Using the Far East to US East Coast trade as an example, while average spot rates increased by a further 2.8% on 15 July, this was much less than the 23% rise on 1 July.
GRIs failing to stick
The Xeneta platform uses more than 450 million crowdsourced data points to provide a clear view of the overall market – this includes the rates offered by individual carriers and freight forwarders.
Data reveals some carriers attempted to push for higher spot rates in the mid-July general rate increases (GRI) while others offered lower rates for the first time in months.
This is important because it means shippers can play carriers off against each other to secure a better spot rate.
Evidence of this behavior can be seen in the Xeneta platform. Early data received prior to 15 July suggested average spot rates would increase on the Far East to US West Coast trade by 2% as carriers looked to push through GRIs.
However, new data received from shippers fresh from negotiations shows average spot rates did not increase – in fact they have fallen by USD 50 per FEU since 14 July.
This is perhaps a small, yet significant, crack in the dam in that it demonstrates carriers have failed to make the mid-month GRIs stick and shippers are regaining some negotiating power.
It is also an example of how quickly market sentiment can change if shippers begin to feel more confident about available capacity.
Where does the market go from here?
It is important to understand that different trades follow different timelines. For example, spot rate growth has slowed on the Far East to North Europe trade in mid-July but there has still been a slight uptick in the mid-high market.
Conversely, the trade from Shanghai to Manzanillo on the Mexico West Coast has already started to soften, with average spot rates falling by 10% since reaching a peak on 1 July. This is possibly due to more capacity being available on this trade as carriers announce numerous new services in response to record-breaking demand growth.
Will spot rates fall?
It should be remembered that the fundamental cause of the market spikes in 2024 is the conflict in the Red Sea, with the majority of container ships continuing to sail around the Cape of Good Hope. Unless there is a large-scale return of container ships to the Suez Canal – which seems unlikely at present - the situation cannot be fully resolved.
However, recent history shows it is possible for spot rates to soften on the major fronthauls out of the Far East while Red Sea diversions are still in place.
Trades from the Far East to US West and East Coasts reached a Red Sea crisis peak on 1 February before declining by 32% and 33% respectively by 30 April (the start of the current spike).
The major fronthaul trades into Europe reached a Red Sea crisis peak a little earlier in mid-January, before declining by 33% into North Europe and 32% into the Mediterranean by the end of April.
Shippers will be hoping it is a case of history repeating, but there are other storm clouds on the horizon.
2024 will still be a difficult year
It is likely that ocean freight markets will soften as they did during March and April, but shippers should move forward with caution.
There is now a very real prospect of union strike action at ports on the US East and Gulf Coasts, while a Trump presidency could see businesses rush to frontload imports ahead of increasing tariffs on imports from China (as well as from the rest of the world).
Port congestion – one of the main protagonists of the current market spike - is easing and the delivery of more new ships will increase capacity further in the remainder of the year. However, global shipping networks are still under immense strain and it will not take much to push the needle back into the red and rates heading skywards.
There are also question marks over the traditional Q3 peak season, which is already under way. Shippers frontloading imports earlier this year has contributed to record-breaking container shipping demand out of the Far East and this should mean a slacker peak season than there would have otherwise been.
This is supported in the fact spot rates are now softening at a time when seasonality usually places upward pressure on the market.
But with ocean supply chains still under huge pressure, concerns will remain over a capacity crunch in the coming months, especially if other disruptions such as union strikes and China tariffs come into play.
Will this solve shippers’ problems?
Average spot rates remain up by 382% from the Far East into the US West Coast since mid-December last year, by more than 300% into the US East Coast and 457% into North Europe.
Even if the market is reaching a peak, shippers are still paying hugely elevated costs. The trade from the Far East to North Europe now stands at USD 6970 per FEU compared to USD 1530 in mid-December last year.
To put this into perspective, importing goods on this trade using the spot market currently costs an additionalUSD 6.97 million for every 1000 containers shipped.
2024 has seen record-breaking monthly volumes of 887 000 TEU shipped on this trade, however, it should be remembered not all containers are transported on the spot market and the long term market has remained relatively flat in comparison.
While shippers should be prepared for a difficult second half of 2024, the latest market movements should offer some hope over increasing available capacity. At the very least this will reduce the risk of shippers having cargo rolled.
Shippers also have the opportunity to use data to identify the early signs of a rising and falling market – which will be vital in the coming months.
Xeneta has produced a mid-year Outlook report assessing the impact of the Red Sea conflict on ocean container shipping, potential disruptions in the remainder of 2024 and how the market may develop in the coming months.
Download a free copy of the report here.
