The freight rates are reaching pandemic levels again, with port congestion and a resurgence in container purchases and charters.
Freight rates are as high as during the pandemic
According to the latest Drewry World Container Index, prices on the Asia to Europe and Mediterranean routes have increased by 2% and 3% respectively since February this year, while prices on the trans-Pacific and trans-Atlantic routes have remained stable with no changes.
The attack in the Red Sea has led shipping companies to divert via the Cape of Good Hope to ease congestion, but there are still disruptions. Freight rates are expected to remain high, with further increases in mid-May. Rates on the Europe-America route were successfully raised on May 1st, and shipping companies have notified of another increase on May 15th, with an estimated additional $1,000 per TEU. Rates on the Europe route are nearing $5,000, while the US West Coast route is expected to exceed $5,000.
Recently, HMM announced that starting from June 1, 2024, they will implement a new GRI for services from all origins to the United States, Canada, and Mexico.
Details are as shown in the image:
Reasons for Increased Ocean Freight Rates
1. Increased demand on the Asia-Europe routes.
2. Rising ocean freight rates on the Asia to Latin America routes, now ranging between $9,000 to $10,000 per standard container.
3. Some shipping companies adjusting their freight rates approximately every 48 hours.
Port congestion
It is reported that ports in Asia, particularly in Singapore, Shanghai, Ningbo, and Port Klang in Malaysia, are experiencing congestion, with vessel turnaround delays ranging from 3 to 6 days.
Here is the delay situation at major ports in Asia:
Jebel Ali: 3-4 days
Dammam: 4-6 days
Colombo: 1-2 days
Singapore: 3-5 days
Port Kelang: 2-3 days
Ningbo: 1-2 days
Shanghai: 1-2 days
The reason for the sharp increase in shipping rates during the off-peak season.
The European shipping routes have faced significant disruptions due to the ongoing crisis in the Red Sea, compelling vessels to detour around the Cape of Good Hope. This diversion has intensified pressure on already strained shipping capacities. The resultant influx of vessels, prolonged sailing durations, and heightened port transshipments have exacerbated congestion levels, leading to increased demand for shipping capacity. Compounding these challenges are difficulties in container returns, contributing to shortages that further complicate operations along these critical routes.
Meanwhile, in South America, the Brazilian government implemented tariffs ranging from 10% to 15% on imported Chinese automobiles starting in January of this year, with plans to escalate tariffs to 18% to 25% by July, eventually reaching 35% by July 2026. This policy shift has prompted Chinese automakers to ramp up exports to South America, with companies like BYD exporting 100,000 vehicles and asserting their share of maritime resources. Consequently, shipping companies have redirected their focus from West African routes to South American routes, causing a sharp increase in shipping costs along the West African corridor.
Furthermore, anticipation surrounding the U.S. presidential election campaign saw candidate Trump threaten to impose a 60% tariff on Chinese imports. In response, Chinese companies intensified their investments in South America, while importers proactively stocked up, anticipating heightened tariffs and creating an early peak season for shipping.
To mitigate losses from the previous year, shipping companies have collectively raised prices in response to these geopolitical and economic shifts, reflecting the complex dynamics shaping global maritime trade routes and costs.
Resurgence in ship chartering and container purchases
According to Linerlytica, there has been a notable resurgence in ship chartering and container purchases in the maritime industry.
Demand for vessels has been robust, leading to substantial growth in the charter market. Major shipping lines such as CMA CGM, Hapag-Lloyd, Maersk, and SeaLead have extended lease periods and increased their chartering activities significantly.
Linerlytica's report highlights that despite a significant influx of new vessel deliveries, strong demand in the freight market has driven up charter rates for most vessel sizes, excluding those with capacities of 1,100 TEU and below. Currently, there remains a shortage of container equipment and vessels available for immediate deployment.
Maersk, one of the world's largest container manufacturers, has noted a resurgence in container demand following the outbreak of the Red Sea crisis in late 2023. This uptick underscores the industry's response to geopolitical disruptions and reflects ongoing efforts to meet heightened shipping demands amid global economic recovery efforts.
Transportation expenses have risen to pandemic level, port congestion has resurfaced, and there is a growing need for chartering vessels and purchasing containers.
One month ago, after the collapse of the "Francis Scott Key" Bridge, the port of Baltimore in the United States finally welcomed its first small container ship on April 27th local time.
On April 28, the container ship named "MSC Passion III" arrived at the West Jetty Ocean Terminal in the Port of Baltimore.
According to the Port of Baltimore's social media page, the container ship flying the Liberian flag (MSC Passion III) has been unloaded at the port with approximately 80 dockworkers unloading nearly 1,000 containers. The Port of Baltimore has described this as "a new milestone!" indicating that the port is gradually resuming operations!
Two companies collaborate for the first time on the Pacific route
HMM and SM Line have recently revealed a new partnership scheduled to commence in June of this year on the trans-Pacific route, representing their first joint venture on this particular route.
Details of the Cooperation
The partnership involves sharing slots on HMM’s PSX service and SM Line’s CPX service, with each company exchanging 300 TEUs per week. This agreement is scheduled to expire on April 30, 2025.
PSX Service:
• Port Sequence: Shanghai - Kwangyang - Busan - Los Angeles - Oakland - Busan - Kwangyang - Incheon - Shanghai
• Current Vessel Capacity: Ranges from 8,600 to 10,000 TEUs
• Planned Upgrade: Vessels will be upgraded to 13,800 TEU capacity within this year.
CPX Service:
• Port Sequence: Qingdao - Shanghai - Ningbo - Busan - Long Beach - Portland - Busan - Kwangyang - Qingdao
• Current Vessel Capacity: Operated by six vessels with a capacity of 6,655 TEUs.
Strategic Implications
As a member of THE Alliance, HMM aims to expand its cooperation with more shipping lines to increase slot capacity for THE Alliance, addressing the capacity gap left by Hapag-Lloyd’s departure. This partnership with SM Line represents a strategic move to bolster trans-Pacific services and enhance overall operational efficiency.
The Houthi militia attacks have expanded to the Mediterranean Sea
According to reports on May 3rd, Houthi spokesman Yahya Sarea announced that Houthi forces would target ships associated with Israel sailing in the Mediterranean Sea. This escalation follows their expanded strike capabilities from the Strait of Mandeb to the Indian Ocean, further intensifying the Red Sea crisis. Consequently, shipping routes detouring around the Mediterranean to ports along the Red Sea coast and global vessels heading to the Mediterranean region are once again under threat of attack.
Sarea also warned that if Israel were to attack the southern Gaza city of Rafah, Houthi forces would broaden their targets to include all ships from companies that have had dealings with Israeli entities over the past few months. This threat encompasses the Red Sea, Arabian Sea, Indian Ocean, and the Mediterranean, regardless of the ships' nationality or destination ports.
Since the naval conflict in the Red Sea began in November, Houthi forces have reportedly launched 606 ballistic missiles and drones at 107 vessels belonging to Israel, the United States, and the United Kingdom in the Red Sea, Bab el-Mandeb Strait, Gulf of Aden, and recently the Indian Ocean. Approximately 90 vessels have been attacked so far. The Houthis have threatened to extend drone attacks to the Indian Ocean, including targeting commercial ships traveling between Asia and Europe near the Cape of Good Hope.
This development underscores the escalating threats to global shipping routes, highlighting the need for heightened security measures and strategic planning to ensure the safety of maritime operations in these volatile regions.
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