Freight Market Rates
The current state of the freight market is marked by a significant surge in rates, a trend that has been developing over the past year. According to Drewry’s World Container Index, there has been a 25.7% increase to $5,117.00 per 40ft container as of 20 June 2024. This represents a staggering 233% rise compared to last year, exceeding the 10-year average rate by $768. The increase is partly attributed to a combination of supply and demand imbalances, exacerbated by global events that have disrupted the usual flow of goods.
Shipping lines have responded to these market dynamics by implementing various adjustments, including rate restorations and peak season surcharges, to offset the increased operational costs. For instance, GSL announced a Rate Restoration from South-East Asia to Australia and New Zealand. At the same time, CMA CGM and ANL introduced Peak Season Surcharges for shipments from the Oceania region to North Europe and the Mediterranean. These measures reflect the industry’s attempt to stabilise the market amidst fluctuating conditions.
Supply / Demand Dynamics
The freight market’s volatility can largely be traced back to the mismatch between supply and demand. The demand for shipping services remains significantly higher than anticipated for 2024, further strained by the ongoing Red Sea Crisis. This has led to widespread port congestion, equipment imbalances, and shortages, particularly in key hubs. The situation is further complicated by a surge in demand for goods from China to the USA, driven by fears of US East & Gulf Coasts strikes and tariff increases on Chinese goods by the US government.
These supply and demand dynamics are causing significant rate increases and leading to a reassessment of global shipping routes and strategies. Shipping lines are being forced to adapt quickly to these changes, seeking alternative routes and solutions to mitigate the impact of congestion and delays.
The Geopolitical Tensions Impacting Global Shipping
Geopolitical tensions, notably the Red Sea Crisis, have introduced new challenges for the global shipping industry. The crisis has escalated hostilities, increasing shipping costs and disruptions across multiple supply chains. Not only has this situation contributed to the rerouting of ships around the Cape of Good Hope, adding time and expense to shipments, but it has also resulted in significant incidents involving attacks on merchant vessels.
The impact of these geopolitical tensions is far-reaching, affecting not just the shipping rates but also the overall stability and security of global trade routes. Shipping companies must navigate these complexities carefully, implementing new rates and surcharges to cope with the ongoing crisis and ensure their crews’ and cargo’s safety.
Rate Restoration and Peak Season Surcharges
In response to the challenging market conditions, shipping lines have introduced rate restorations and peak season surcharges. These measures are aimed at covering the increased operational costs and ensuring the sustainability of shipping services. For example, Maersk announced a Peak Season Surcharge from South-East Asia to Australia and from Oceania to all North America and Latin America destinations. Similarly, Cosco implemented a rate restoration for its southbound services to Australia.
These adjustments indicate the broader efforts within the industry to manage the volatility of the freight market. While these surcharges may increase costs for shippers in the short term, they are deemed necessary to maintain service levels and reliability amid the ongoing disruptions.
Panama Canal – Drought Recovery
The Panama Canal Authority (ACP) announced that daily transits will increase from 32 to 33, effective 11 July. Furthermore, this number will increase to 34 as of 22 July, following Gatun Lake’s current and projected level for the coming weeks.
With these progressive increases, by 22 July, the Canal will have added two transits to the current schedule: one to the Panamax locks (raising the daily transits to 25) and one to the Neopanamax locks (increasing daily transits to 9).
Red Sea Crisis and its Global Impact
The Red Sea Crisis remains a critical concern for the shipping industry, with ongoing hostilities leading to increased risks and costs. The crisis has disrupted established shipping routes and caused widespread port congestion and delays, placing immense strain on global supply chains. Shipping companies are grappling with the challenge of rerouting vessels, resulting in increased operational costs, additional war risk premiums, and heightened environmental impacts due to longer and more hazardous shipping routes.
In response to the escalating crisis, a concerted global effort has been made to address the security threats posed to commercial shipping. Increased military engagements and strategic interventions are being implemented to safeguard vessels and mitigate risks. Despite these efforts, the volatile nature of the situation continues to present significant challenges for the industry, with the potential for further escalation looming large and creating uncertainty in the maritime sector.
As the crisis unfolds, shipping companies navigate a complex landscape of heightened security concerns and operational challenges. The ongoing hostilities impact the efficiency and cost-effectiveness of shipping operations and underscore the urgent need for robust contingency plans and risk management strategies. In the face of these uncertainties, industry stakeholders closely monitor developments and work towards sustainable solutions to safeguard the integrity of global supply chains amid geopolitical upheavals.
Container Shortages Contributing to Freight Volatility
Container shortages have emerged as a significant factor contributing to the volatility in the freight market. The uneven distribution of containers due to schedule adjustments and disruptions has led to equipment shortages at major hubs, particularly in China. This has had a cascading effect on global shipping operations, exacerbating port congestion and delays.
The shortage of containers is particularly acute for 40GP and 40HC containers, with all newly manufactured boxes fully booked until August. This situation underscores the need for more strategic planning and coordination within the industry to address the imbalance and ensure the efficient movement of goods.
Strategic Responses to Port Congestion and Delays
Port congestion and delays have become a widespread issue, impacting terminals worldwide. In response, terminals and shipping lines are implementing various strategies to manage the situation. For instance, the adjustment of infrastructure charges and the increase in daily transits through the Panama Canal are measures to alleviate congestion.
Shipping companies are also exploring technological solutions and partnerships to improve operational efficiency and reduce delays. These efforts are crucial in maintaining the flow of goods and minimising the impact on global supply chains.
Global Port Congestion Hotspots
Singapore has seen only a slight improvement in the past month with the congestion issues, with the TEUs at anchorage falling below 300,000 in the past week and the queue-to-berth ratio also falling to 0.8 from the recent high of 1.35 vessels at anchorage for every vessel at port. Congestion has since spread to nearby ports, assisting with the overflow.
Schedule Reliability
After a steady improvement each month in Q1, the latest global schedule reliability statistics show a decline in April, with reliability reduced by 2.5% month-on-month to 52.1%. Schedule reliability was 12.1% lower than the previous year on a year-on-year basis.
The average delay for late vessel arrivals has continued to improve, decreasing to 4.74 days. On a year-on-year basis, the April 2024 figure was 0.40 days higher.
Cancellations – Blank sailings increasing
Between week 26 (24 Jun-30 Jun) and week 30 (22 Jul-28 Jul), 61 cancelled sailings out of 668 scheduled sailings, representing a 9% cancellation rate, 3% higher than the prior month. During this period, 51% of the blank sailings will occur on the Transpacific Eastbound, 29% on the Asia-North Europe and Med, and 20% on the Transatlantic Westbound trade.
Australia – Based on July schedule data, from China to Australia, eight cancelled sailings out of 101 scheduled sailings have been announced, representing a 7.9% cancellation rate. Up by 3.4% compared to the prior month.
Advancing Towards Sustainability in Shipping Practices
Amidst the challenges facing the freight market, there is a growing focus on sustainability in shipping practices. Maersk and other major shipping companies have advocated for a climate tax on fossil fuels to promote the use of green alternatives. The proposed Green Balance Mechanism aims to equalise fuel costs, incentivising investment in low-emission technologies.
This collaborative effort highlights the shipping industry’s commitment to tackling climate change and aligning with global sustainability goals. As the industry navigates the current market challenges, transitioning to sustainable energy sources will be critical in shaping its future.
Global Container Throughput
Global container port throughput is projected to reach an unprecedented 947 million TEU in 2024. This forecast represents a significant upward revision to 4.7% annual growth. The surge in cargo volumes during the first half of 2024 has exacerbated port congestion, reaching an 18-month peak.
Global Air Freight
The global air cargo spot rate rose +9% year-on-year in May to $2.58 per kg, marking its second consecutive monthly growth, and up +5% month-on-month. The market is set for double-digit growth in 2024, following a +12% year-on-year increase in demand in May.
Notable increases in spot rates include a +110% rise on the Middle East & Central Asia to Europe corridor, +65% from South-East Asia to North America, and +43% from China to North America.
There is a possibility of downward pressure on air cargo rates if fewer freighters are needed for e-commerce shipments from China, which could shift back into the general air freight market.
Cargo capacity utilisation remained stable month-on-month at 58% in May but increased by +3% year-on-year.
Terminal and Port Update
Patrick Terminals
- Brisbane: Delays approx. 0.5 day
- Fremantle: Delays approx. 4 – 5 days
- Sydney: Delays approx. 0.5 day
- Melbourne: Delays approx. 0.5 day
DP World Terminals
- Brisbane: Delays approx. 2 days
- Fremantle: Delays approx. 1.5 – 2 days
- Sydney: Delays approx. 1 – 1.5 day
- Melbourne: Delays approx. 0.5 day
- DP World has recently experienced vessel bunching at the Melbourne and Brisbane terminals.
VICT
- Melbourne: Delays approx. 1 day
- A reminder that effective 1 July 2024, VICT will be adjusting the Infrastructure Charge from $177.48 (excl GST) to $194.85 (excl GST) per full container.
AAT
- Brisbane: Delays approx. 3-4 days. Expected to ease in early July.
- Port Kembla: Working with minimal delays.
- Melbourne: Working with minimal delays.
MIRRAT
Melbourne: Working with delays. Congestion is expected to continue until the end of June.
New Zealand
- Auckland: delays approx. 0.5 day
- Tauranga: minimal delays approx. 0.5 day
- Napier: minimal delays approx. 0.5 day
- Lyttleton: minimal delays approx. 0.5 day
The 2024 freight market is navigating through significant challenges and changes. From soaring rates to geopolitical tensions, the industry is facing unprecedented pressures. Yet, amidst these challenges, there are concerted efforts to adapt and advance towards a more sustainable and resilient future. As the global shipping industry evolves, staying informed and adaptable will be vital in navigating the dynamic freight market landscape.
Magellan Logistics provides freight and logistics services to all industries, including sea freight, air freight, customs clearance and the all-important digital freight portal, providing 24/7 visibility of all your shipments. Keeping customers abreast of changing market conditions is critical in what we do. Our dedicated and professional team would love an opportunity to assist your business. If you have questions about the freight market update, please get in touch with one of our freight specialists at AUS 1300 651 888 or NZ (09) 974 4818.
Sources:
With thanks to the FTA for their freight market update.
