FBX Index January 2024: Expect disruptions to continue

What a difference a month can bring about. Up until mid-December the baseline outlook for container shipping 2024 was for a continued cyclical downturn likely with freight rates bottoming out in late Q1 or early Q2 2024. After this, it was anticipated that carriers would begin to idle more capacity to stabilize and strengthen rates from what had already become loss-making levels.

The de-facto closure of the Suez routing has changed this baseline outlook fundamentally.

When looking at the developments over the next weeks and months, it is important to distinguish between short-term and medium-term impact.

In the medium term, the baseline outlook is for continued usage of the routing around Cape of Good Hope (COGH). Operating the Asia-Europe and part of the Asia-US East Coast network will absorb 5 to 6% of global capacity. This should be manageable given the amount of overcapacity that had accumulated in the market.

Clearly, supply chains would have longer transit times, with Asia-North Europe up by 7 to 8 days and Asia-Med up by 10 to 12 days at least. It will also lead to rates markedly higher than pre-crisis. This will cause carriers to become profitable again. But rates will peak in the next four weeks and then abate to this new level.

In the very short term, we are faced with a potential capacity crunch in Asia, especially in relation to empty containers.

The sudden shift to COGH caused vessels en route to Asia to become approximately two weeks delayed, with some having to backtrack from the Red Sea back through the Suez and out the Mediterranean to then go around Africa. In extreme cases, a few vessels are delayed by up to 40 days.

This means an estimated 780,000 TEU of empty containers less than planned will arrive in Asia just prior to Chinese New Year. This is a major factor in pushing up spot rates presently. A shortage of equipment also means that the upwards rate pressure will spread to all export trades out of Asia and not just trades going around Africa.

Once we are past Chinese New Year, the seasonal drop in demand will allow equipment and vessels to reach a normal equilibrium within a few weeks and the market will settle into the medium-term outlook mentioned above. Part of settling into new longer networks will also mean carriers will re-allocate more vessels to Asia-Europe services. This leads to vessels being removed from low-paying trades such as Atlantic, in turn causing a domino effect whereby such trades will also see increasing freight rates.

The reason for not anticipating a rapid reversal to a Suez routing is to be found in a couple of elements.

The Houthis who are shooting at the vessels have so far been successful in achieving their objectives. As such they have no reason to cease their actions. A military response involving bombings on land in Yemen is likely but will be unable to eradicate the multitude of missiles and drones the Houthis have on mobile launchers.

The operational flip-flop seen from Maersk is another reason carriers will be hesitant to revert to the Suez. They do not want to switch only to be forced to go back once more to the Cape of Good Hope.

Finally, consistent feedback from shippers in the present situation is a call for predictability and reduced risk in sailing schedules. Using the COPH allows for stable and predictable services.
Source: Vespucci Maritime