How and why does an ocean container shipping market peak?

Average spot rates remain up by 382 percent from the Far East into the U.S. West Coast since mid-December last year, by more than 300 percent into the US East Coast and 457 percent into North Europe.

"Even if the market is reaching a peak, shippers are still paying hugely elevated costs. The trade from the Far East to North Europe now stands at $6,970 per FEU compared to $1,530 in mid-December last year," says the latest update from Xeneta.

To put this into perspective, importing goods on this trade using the spot market currently costs an additional $6.97 million for every 1,000 containers shipped, the update added.

"2024 has seen record-breaking monthly volumes of 887,000 TEU shipped on this trade. However, it should be remembered not all containers are transported on the spot market and the long-term market has remained relatively flat in comparison."

Spiralling rates
The latest Xeneta data shows average spot rates from the Far East to the U.S. East Coast at $10,078 per FEU on July 17. Into the U.S West Coast, average spot rates stood at $7,917 per FEU. "This leaves average spot rates on these major fronthaul trades up more than 140 percent since the end of April when the latest market spike began."

GRIs failing to stick
The Xeneta platform uses more than 450 million crowdsourced data points to provide a clear view of the overall market – this includes the rates offered by individual carriers and freight forwarders, the update added.

"Data reveals some carriers attempted to push for higher spot rates in the mid-July general rate increases (GRI) while others offered lower rates for the first time in months.

This is important because it means shippers can play carriers off against each other to secure a better spot rate."

Early data received prior to July 15 suggested average spot rates would increase on the Far East to the U.S. West Coast trade by two percent as carriers looked to push through GRIs.

However, new data received from shippers fresh from negotiations shows average spot rates did not increase – in fact they have fallen by $50 per FEU since July 14.

"This is perhaps a small, yet significant, crack in the dam in that it demonstrates carriers have failed to make the mid-month GRIs stick and shippers are regaining some negotiating power. It is also an example of how quickly market sentiment can change if shippers begin to feel more confident about available capacity."

Will spot rates fall?
It should be remembered that the fundamental cause of the market spikes in 2024 is the conflict in the Red Sea with the majority of container ships continuing to sail around the Cape of Good Hope.

Unless there is a large-scale return of container ships to the Suez Canal – which seems unlikely at present - the situation cannot be fully resolved, Xeneta says in its report.

"Recent history shows it is possible for spot rates to soften on the major fronthauls out of the Far East while Red Sea diversions are still in place. Trades from the Far East to the U.S. West and East Coasts reached a Red Sea crisis peak on February 1 before declining by 32 percent and 33 percent respectively by April 30 (the start of the current spike).

"The major fronthaul trades into Europe reached a Red Sea crisis peak a little earlier in mid-January, before declining by 33 percent into North Europe and 32 percent into the Mediterranean by the end of April."

While shippers will be hoping it is a case of history repeating, there are other storm clouds on the horizon, the update added.

There is now a very real prospect of union strike action at ports on the U.S. East and Gulf Coasts while a Trump Presidency could see businesses rush to frontload imports ahead of increasing tariffs on imports from China (as well as from the rest of the world).

"Port congestion – one of the main protagonists of the current market spike - is easing and the delivery of more new ships will increase capacity further in the remainder of the year. However, global shipping networks are still under immense strain and it will not take much to push the needle back into the red and rates heading skywards."

Shippers frontloading imports earlier this year has contributed to record-breaking container shipping demand out of the Far East, and this should mean a slacker peak season than there would have otherwise been. This is supported in the fact spot rates are now softening at a time when seasonality usually places upward pressure on the market, the update added.

"But with ocean supply chains still under huge pressure, concerns will remain over a capacity crunch in the coming months, especially if other disruptions such as union strikes and China tariffs come into play."

Outlook
While shippers should be prepared for a difficult second half of 2024, the latest market movements should offer some hope over increasing available capacity.

"At the very least, this will reduce the risk of shippers having cargo rolled. Shippers also have the opportunity to use data to identify the early signs of a rising and falling market – which will be vital in the coming months," the update added.