At the end of 2023, affected by the Red Sea crisis, international shipping prices continued to rise, especially the freight rates on European and American routes doubled in just one month. May is the traditional off-season for the international shipping market, but this year is different. Since the end of April, the freight rates on European and American routes have generally increased by double digits, and the freight rates on some routes have soared by nearly 50%, and the situation of “one box is hard to find” has reappeared.
Shipping prices continue to rise.
According to the data of the Shanghai Shipping Exchange, on May 17, the Shanghai Export Container Freight Index was reported at 2520.76, a surge of nearly 30% from April 26. In addition, as of May 13, the Shanghai Export Container Settlement Freight Index for European routes was reported at 2512.14 points, up 15.5% from April 29, and the US West Coast route was reported at 2508.00 points, up 38.4% from April 29.
Zhang Jie, marketing director of Shanghai Hengtie International Logistics Co., Ltd., said, “The month-on-month increase on many routes even reached 40% to 50%. For example, the freight rate of a 40-foot container on the European route was about US$4,000 in April, and it has risen to about US$6,000 in May. Some routes have become hard to find space, and it is difficult for exporters to book an ideal shipping date.” According to market data, the main contract of the Shanghai International Energy Exchange’s Container Shipping Index (European Line) futures closed at 4033.5 points on May 15. In contrast, in mid-November last year, the quotation of the main contract was less than 800 points, which means that the quotation of the Container Shipping Index (European Line) futures has doubled by about 5 times in half a year.
At the same time, the shipping market, which is originally in the off-season, has set off a “price increase wave”. Maersk, CMA CGM, Hapag-Lloyd and other leading shipping companies have disclosed information on route freight rate increases, covering routes from Asia to Europe, North America, South America and other directions, and the increase on some routes is close to 70%. COSCO Shipping Container Lines Co., Ltd. also issued a price increase notice, indicating that the sea freight rate from the Far East to the United States and Canada will increase significantly, with an increase of US$1,000 to US$2,000.
The background of the recent continuous increase in freight rates is that many trunk lines in the shipping industry are already fully loaded. As for the reasons for the increase in freight rates, industry insiders and institutions generally believe that it is affected by a combination of factors, one of which is the increase in the cost of some routes. Against the backdrop of a strong rebound in freight rates from the bottom, the performance of companies in the shipping industry chain has rebounded significantly since the beginning of this year. As for the subsequent freight rate trend, some industry insiders believe that there are still many uncertainties and it is impossible to make an accurate and qualitative prediction.
Price increases are affected by multiple factors.
Industry insiders pointed out that the current trend of shipping prices is affected by a variety of factors, including the sustainability of economic recovery, changes in the geopolitical situation, and the development of the supply and demand relationship of shipping capacity.
A report from Industrial Securities shows that interest rates peaked at the end of 2023, and demand for US commodities gradually increased. At the same time, the United States ended the destocking cycle that lasted for a year and a half and began to replenish inventory. Specifically, industries with high export dependence, such as equipment, furniture, and textiles and clothing, have already shown signs of restocking. The United States’ restocking is basically synchronized with imports, so the increase in the growth rate of US imports may boost exports in related countries. Therefore, this year’s peak season for shipping has arrived early, and coupled with the problem of insufficient capacity supply, freight rates have naturally risen rapidly.
In addition, in the first quarter of 2024, the performance of companies in the shipping industry chain has rebounded significantly, which can be clearly seen from the financial report data of related companies. For example, the international shipping giant Maersk stated in its recently released first quarter 2024 financial report that it achieved operating income of US$12.355 billion in the first quarter, a year-on-year decrease of 13%, but an increase of 5.2% compared with the fourth quarter of 2023. Maersk said that due to the good performance of the terminal business and the dual impact of increased demand and the ongoing Red Sea crisis, the company’s performance was in line with expectations, and revenue recovery was strong compared with the fourth quarter of 2023.
Maersk CEO Kevin Klein said: “Demand trends are moving towards the upper limit of market growth in previous financial expectations, and the outlook for the next few quarters is also brighter. However, due to the large number of new ships delivered this year and next year, it is expected that this will offset the positive impact of the above factors, putting pressure on the shipping market again. Therefore, we will continue to control costs to reduce the additional costs caused by the obstruction of shipping business and increase the profits of logistics and service business.”
The detour around the Red Sea is also one of the factors leading to the increase in container shipping prices. Some analysts said in a research report that the Red Sea crisis has forced more ships to avoid the Red Sea route and detour around the Cape of Good Hope in Africa, causing global container shipping congestion, causing the container shipping industry to have a problem of tightening supply and demand while the delivery of new shipping capacity has set a record. The long-term trend of container ships detouring the Red Sea is obvious, and the detour has led to an increase in sailing distance of about 29%, and the demand for shipping has also increased accordingly.
Freight rates are expected to cool down in the second half of the year.
Industry insiders believe that this wave of shipping price increases is driven by the situation in the Red Sea, foreign trade companies’ “export rush”, shipowners’ price increases and other factors. It is expected that freight rates will still fluctuate at a high level in the short term, but will not continue to grow significantly. The freight rate increase will not last too long and is expected to ease within three months.
“Given the huge increase in the current round of major European and American routes, which has nearly doubled, and with the end of the off-season suspension, the injection of new shipping capacity by shipping companies, and the end of the short-term rush to ship electric vehicles, batteries and energy storage equipment, it is expected that there will be no market basis for continued sharp increases in the future.” said Zhong Zhechao, founder and CEO of One Shipping.
In announcing its first-quarter financial report, France’s CMA CGM predicted that as the delivery of new ships accelerates, global shipping capacity will be boosted and shipping freight rates are expected to fall in the future. “The situation in the Red Sea has absorbed almost all the new capacity put on the market in the first quarter,” said Ramon Fernandez, the company’s chief financial officer, in a conference call. He expects that the pressure of freight rate increases caused by regional conflicts and strong consumer demand “will decline in the second half of this year.”
Fernandez predicts that the global fleet will grow by 10% this year and will grow by about 7% in the future. “This will lead to overcapacity in the maritime freight industry, and the detour around the Cape of Good Hope will not be enough to absorb the excess capacity.” In addition to CMA CGM, international shipping giant Maersk also recently predicted that global capacity will generally be in excess in the second half of this year, which means that freight rates will fall.
