What will prevent ocean container spot rates from reaching the levels seen during the pandemic?

The container shipping market has been radically changed in 2024. Spot rates on major trades from the Far East have increased by more than 300% between December 2023 and June 2024.

The current average spot rate of $7,648 from the Far East to the US West Coast represents a 366% increase since December 14 last year, before the escalation of the Red Sea conflict. The average spot rate of $9,146 to the East Coast represents a 268% increase over the same period.

For much of the second quarter of 2024, Singapore, the world’s largest transshipment hub, was the epicentre of port congestion in the Far East. While moves by carriers to spread their cargo across the region have helped ease the situation in Singapore, neighbouring hubs continue to bear additional burdens, with the Port of Klang recording record congestion on 1 July.

Shippers are working proactively to avoid repeating the supply chain chaos seen during the pandemic by preloading imports – some paying higher rates to secure space for their cargo on ships.

The peak season has therefore started to arrive several months earlier, which has increased the pressure on already overloaded and disrupted freight networks. We are already seeing importers shipping goods for the Christmas period in May.

As Emily Stausbøll told BBC News on July 10: “We had record volumes in May, and that’s not because there’s a huge underlying demand for goods over the summer. It’s partly to make sure you have what you need at Christmas.”

While avoiding operational disruptions is a key driving factor, Stausbøll notes that geopolitical events and the threat of tariffs on Chinese imports are also factors driving demand.

The intensity of recent market movements is due to the impact of the conflict in the Red Sea region, which has created ripples across global supply chains. But there is a behavioral aspect to these market movements that shippers have control over and can help prevent ocean container spot rates from spiraling to pandemic levels.

The response of carriers and shippers could be decisive

As the data currently stands, it is unlikely that the spot market will reach the heights of the Covid-19 pandemic. That said, it cannot be ruled out completely, especially given the unexpected and dramatic nature of the current market rally.

What could tip the balance is how shippers and carriers respond in the coming months.

From a shipper’s perspective, we are seeing an increase in anticipated imports ahead of the traditional third-quarter peak period, which in turn is driving the market higher. While early shipping can help protect business operations, that benefit is reduced when the broader market also begins shipping earlier. Instead, we are seeing an increase in freight rates and premium surcharges. Shippers also need to factor in the cost of warehousing and containers to keep inventory in reserve for months longer than expected.

From the carriers’ perspective, they can reduce port congestion by diversifying the transshipment hubs they call at in Asia and Europe.

For example, on July 3, MSC announced that it would revise its “premium service” called Britannia (announced in mid-June) to sail directly from China/Vietnam to Liverpool, instead of via its planned stopover in Singapore en route to Europe. Such moves could determine whether the current level of congestion will persist until the end of 2024 – and whether freight rates will remain high.

Prepare for the second half of a difficult year

In October 2023, Patrik Berglund, CEO and co-founder of Xeneta, said that while average spot rates on major trades from the Far East had fallen to levels not seen since early 2019, another black swan event could dramatically change the global picture, meaning shippers would have to pivot their supply chain strategy again and deal with carriers that no longer view contract rates as profitable.

To document how much the market has changed since October, Xeneta has released a mid-year update to its 2024 outlook.

This report provides the latest assessment of the ocean freight market and offers suggestions on what to do to mitigate risks and find opportunities amid the chaos. In addition to the impact of the Red Sea conflict, this mid-year update also includes other potential disruptions on the horizon, such as the threat of strikes at U.S. East and Gulf Coast ports and new tariffs on Chinese imports in the event of a Trump presidency.

To access this very important information, download your copy of Xeneta’s 2024 Outlook Mid-Year Update here.