Why Are Shipping Rates Soaring?

Recently, the international shipping market has experienced a dramatic price storm. According to the latest report from Loadstar UK, a British freight forwarder recently warned customers that Asia-Europe ocean freight demand is beginning to show a similar pattern to the peak of the epidemic. data from Container x Change shows that container prices in China are experiencing huge volatility, with rates changing rapidly in just a few days, and in some cases soaring to as high as US$10,000. Sharp spikes in demand and tight space have contributed to the phenomenon, with foreign traders saying prices are adjusted about every 48 hours.And, in addition to rising demand on the Asia-Europe route pushing up freight rates, another route: Asia-Latin America ocean freight rates have also climbed to $9,000-10,000/FEU.

Even more outrageously, freight rates quoted by individual shipping lines are adjusted approximately every 48 hours!

Speaking at an analysts' conference, Maersk's Chief Executive Officer, Vincent Cole, revealed that freight volumes on European routes have risen by 9%, thanks to strong demand from European importers to replenish inventories.Scan Global Logistics has also warned its customers that westbound Asian ocean freight rates levels are soaring, with persistent demand for capacity, blanket sailing schedules, and pessimistic forecasts about the outlook for the Red Sea crisis, the have combined to drive the rapid rise in ocean freight rates.

However, the UK-based forwarder revealed that the rates published by shipping lines were quickly withdrawn as they were replaced by higher prices. In addition, the freight forwarder mentioned that due to market tightness and adjustments in shipping lines' strategies, several shipping lines have closed their booking mechanisms for FAK and spot slots and will not reopen them until June or later. This means that even if one is willing to pay higher freight rates, one may not be able to book slots in time, which further aggravates the tension in the freight market.

Unrelated routes are also being affected, such as the Asia to Latin America route, where rates have risen sharply and are now $9,000 to $10,000 per 40 feet, and capacity is being shifted to more profitable routes.

It is worth noting that, at present, not only is the ocean freight rates in the wild, these container liner company's share price is also close to rising!

Shipping lines are imposing peak season surcharges and GRIs on 'contract and spot contracts', with Hapag-Lloyd, MSC and Duffy announcing increases in ocean freight rates from the Far East to Europe.

Freight quotes valid for only 48 hours?

In addition, contract and spot freight rates levels are beginning to diverge, and in some cases the difference between spot and contract freight rates can be over $3,000 per 40-foot dry container on the same transaction. Shipping lines are increasingly prioritizing and loading higher revenue cargoes to mitigate dismal financial results in the fourth quarter of 2023 and, to some extent, mediocre results in the first quarter of 2024.

In addition, part of the problem stems from a shortage of containers, with Container Xchange's clients stating that while inventory levels are not putting significant pressure on warehouses, container prices are “continuing to climb, with adjustments occurring approximately every 48 hours”. This is largely due to the uncertainty associated with the Red Sea situation and the desire of suppliers and sellers to hedge their risks.

Echoes of market nervousness can be heard in the warnings of UK freight forwarders. Demand for Asia-Europe shipping is beginning to show a similar pattern to that at the peak of the epidemic, and the speed and pace of this change is alarming. Importers are facing a nightmare: climbing demand, a 10-20% year-on-year increase in their customer base, and having to add two weeks of buffer stock for long-haul shipments around the Cape of Good Hope.

Shipping lines are imposing peak season surcharges and GRIs on both long and short-term contracts, and several shipping lines have announced increases in ocean freight rates from the Far East to Europe. Rates on unrelated routes, such as the Asia-Latin America route, have also risen sharply, with the price of a 40-foot HCL already speculated at US$9,000 to US$10,000, and capacity is being shifted to more profitable routes. Container shortages and rising prices are also part of the tight market. The price of a 40-foot container has climbed from $2,200-$2,300 in April to $2,500-$2,700 currently. Detours around the Cape of Good Hope have absorbed a significant number of containers, and a significant number of containers have also been stranded locally. Shipping these containers out may not be economically feasible due to high transportation costs, relatively low storage costs and the fact that the containers themselves are nearing the end of their useful life.

Four factors contributing to the rise in ocean freight rates:

1. European routes have been significantly affected by the crisis in the Red Sea, forcing ships to detour around Africa. The African route originally had limited capacity, but this year has seen an influx of vessels, longer voyages, and increased transshipment ports have LED to more vessels needing to operate extended journeys coupled with port congestion have resulted in many containers not returning, this has also the main reason for the recent container shortage.

2. The price increase in South America is mainly due to Brazil's and Mexico's plans to impose additional tariffs on Chinese electric vehicles in July and beyond. Many automakers and desperately shipping to these regions without actual orders, according to a source, BYD has already shipped more than 100,000 vehicles. Electric vehicle companies have seized the majority of shipping resources. Many shipping companies withdrew vessels from running to West Africa for these large orders leading to a general increase in rates in West Africa. But also reportedly fill up destination ports’ yard quickly with automobiles.

   
   

   

3. The U.S. election hac been claiming future tariffs of 50-60% on Chinese goods nearing the election day which had let some Chinese companies to increase their investment in South America, additionally many importers are stocking up in advance causing the peak season to arrive early.

4. This is the real reason, giants are taking advantage of the above reasons and actively intacidly raising prices together. Exproting companies need to plan their shipping schedules in advance as everyone is scrambling for containers. Estimated Time of Arrival (ETA) is also unstable. Chinese exporting companies already have low profits, and this time they have to endure the pain of being squeezed even more. As a textile export foreign trade enterprises, we sincerely hope to change the status quo, so that shipping becomes as simple as sending express.

   
   

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