As of May 2024, there has been a significant increase in the Ocean freight container spot rates.
Whilst the biggest rise in costs comes on the Far East to North Europe, the rises across all major trades is fairly consistent.
“There is a cocktail of uncertainty and disruption across global ocean freight supply chains,” said Peter Sand, chief analyst at pricing platform Xeneta. He explains, “it is the speed and magnitude of this recent (rate) spike that has taken the market by surprise.”
Whilst this sudden increase has come as a surprise, there are many factors that have culminated which can explain the change. Most significantly, the diversions made necessary after a spate of attacks by Iran backed Houthi rebels which began in November. When 80% of international trade volume is instead traveling around the Cape of Good Hope, such as a shipping route from Port Said to Salah goes from an eight day transit time to thirty days, a knock on effect is obvious.
In addition, there are now vessel backups at seaports and empty container shortages, further compounding the issues. This is the same level of chaos seen during the COVID pandemic supply chain crisis. However, this chaos may also be partly due to the busy season arriving early.
Large retailers are stocking up for the back to school, Thanksgiving and Christmas holidays, manufacturers and importers are rushing out goods to avoid possible tariff hikes. With the shipping delays and now increased demand, other manufacturers and importers are also rushing to ship goods, hoping to avoid disruption to supply chains, further compounding the issues.
“In the near term we will see a significant crunch in the form of very elevated rates and additional delays,” Judah Levine, head of research at Freightos (CRGO.O) said.
There is also significant port congestion in many Asian countries, such as Singapore, which is now being skipped by many ships leading to further disruption at the surrounding ports which have to deal with increased traffic.
There is also the fear of additional black swan events – a metaphor for an unpredictable event that is beyond what is normally expected of a situation with potentially severe consequences, impacting the industry. As well as the Red Sea crisis, there are still ongoing restrictions in the Panama Canal and signs of escalation in the US-China trade war.
Emily Stausbøll, Xeneta Senior Shipping Analyst, said: “Who can be confident in saying there isn’t going to be another black swan event in 2024?
This week we have seen the announcement of new US tariffs on imports from China, there are fears over port congestion in the Mediterranean and Far East, there are fears over equipment shortages, and there is the threat posed by labor negotiations on the US East Coast which has the potential to cause massive disruption.
“If shippers have the ability to build up inventories just in case these threats become a reality then it is not surprising they are doing so.”
It is vital that shippers increase the resilience of their supply chains and understand the individual risks that they are facing, and quantify what level of risk they are willing to take.
This is an incredibly complex market, with each shipper and importer having to make their own insights and make decisions based on the evidence and analytics that are pouring in.
If you have any questions about Ocean Freight and whether these changes will impact you and your own trade, then please contact us to discuss the best transport and freight options for you.
