Container Market Goes on a Run: Volatility Expected to Persist Moving Forward

The container market has heated up considerably over the past few weeks. In its latest weekly report, shipbroker Intermodal said that “just a few weeks ago, the container shipping market seemed relatively balanced, with freight rates declining after the initial spike caused by the diversion of ships away from the Red Sea due to conflict in the region. However, the situation has changed drastically in recent weeks with the sector currently experiencing severe disruptions and a sharp rebound in spot freight rates across major trade routes with several factors contributing to this remarkable surge”.

According to Intermodal’s Ms. Chara Georgousi, said that “firstly, diverting vessels from the Red Sea due to the ongoing conflict has significantly impacted shipping schedules. The alternative route around the Cape of Good Hope adds up to 2 weeks to voyage times, disrupting planned schedules and increasing fuel consumption and costs. This rerouting has led to a ripple effect, with major transshipment hubs in Europe and Asia becoming bottlenecks, further slowing down the movement of goods. Remarkably, berthing delays in major ports are extending up to seven days, while dwell times in Shanghai have reached 3-year highs. This severe congestion has led to vessel bunching and forced some carriers to omit planned port calls, compounding the problem at downstream ports which must handle additional volumes. Overall, it is estimated that worsening port congestion has removed more than 2% of container vessel supply since March”.

Ms. Georgousi added that “the shipping industry is also grappling with operational disruptions such as increased pirate attacks off Somalia and security threats in the Strait of Hormuz, necessitating further shipping routes and schedule adjustments. On top of the above, drought conditions in Panama have reduced the canal’s transit capacity, imposing draft restrictions and further delaying cargo movement between the Atlantic and Pacific oceans. This has forced vessels to wait longer to transit the canal or seek alternative routes, which increases overall transit times and congestion at other ports”.

“Meanwhile, shippers are increasingly front-loading their imports to mitigate future supply chain disruptions. This behavior, reminiscent of strategies seen during the COVID-19 pandemic, contributes to the current surge in demand. Companies are shipping goods well before the traditional peak season, leading to an early onset of heightened activity in the market. This precautionary stocking behavior, aimed at securing inventory for the latter part of the year, particularly for the holiday season, is further straining an already stretched system”, Ms. Georgousi said.

According to Intermodal’s analyst, “the combined effect of these disruptions has led to a sharp increase in freight rates. For instance, the rate on the Shanghai to Northern Europe route reached $3,740 per TEU by the end of May, about 20% higher than the high seen in mid-January 2024 and the highest level on record outside of the COVID era. Additionally, the rate on the Shanghai to WC America route recently reached $6,168 per FEU, about 29% higher than the high seen in early February 2024, while the rate on the Shanghai to EC America route recently reached $7,206 per FEU, about 10% higher than the high seen in early February 2024. This increase in spot freight rates is accompanied by a rise in containership charter rates, which have also shown an upward momentum in recent weeks”.

“Looking ahead, the container shipping market is expected to remain volatile. While additional ship capacity, with an expected delivery of 2.7 million TEU across 2024, is anticipated to ease some pressure points, the overall outlook depends on several variables. If demand exceeds expectations, particularly as we approach the traditional peak season, the pressure on liner networks and container availability will remain high. The ongoing geopolitical tensions and operational disruptions are also likely to persist, contributing to market uncertainty. However, there are signs that the recent spike in spot rates may start to stabilize. With the operational capacity projected to exceed 30 million TEU in the second half of 2024 and as shippers adjust their behaviors, the market may see a gradual easing of current bottleneck”, Ms. Georgousi concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide