Will container shipping rates drop significantly?

The question facing the container shipping market today is: Will spot freight rates drop sharply after demand falls? Or is it gradually moving towards a soft landing? Comprehensive analysis believes that the current trend is more inclined to the latter. Freight rates on transpacific routes remained stable in July and early August, and some indices even moved higher again.

With U.S. import demand still higher than pre-pandemic levels, and with worsening congestion at some ports, spot freight rates remain at a level. East Coast ports remain congested, and the Port of Savannah is under pressure from a high volume of cargo imports and ship delays, said George Griffiths, editor-in-chief of global container freight at S&P Global Commodities.

FBX transpacific rates rise

There are differences in the assessment of freight rates by different indices, but generally show the same trend. On Friday, the Freightos Baltic Daily Index (FBX) spot freight rate for the Asia-West America route was estimated at US$6,692/FEU. Although it is only equivalent to one-third of the historical peak in September last year, it has increased by 2.7% from the low of $6,519/FEU on August 2, and is still 4.5 times that before the outbreak in 2019.

The blue line represents the 2021 valuation, and the orange line represents the 2019 valuation.

On Friday, the FBX Asia-East US trade was valued at $9,978/FEU, less than half of last year’s September record high, but up 3.5% from the Aug. 2 low of $9,640, a 2019 3.6 times.

Drewry Index Slowly Declining

With no surcharges included in Drewry's assessment, its weekly freight index showed a moderate downward trend. Unlike FBX, Drewry's recent valuation of the Shanghai-Los Angeles route has not shown an upward trend. The rate reported last Thursday was $6,985/FEU, the lowest since June 2021 and down 44% from its all-time high in late November 2021, but still 4.2 times higher than the same period in 2019.

Last Friday, Drewry estimated the weekly freight rate for the Shanghai-New York route at US$9,774/FEU. The freight rate valuation of the route has been relatively stable over the past two weeks, but the latest data is the lowest since June 2021, down 40% from the peak in mid-September last year, but 3.5 times the pre-pandemic value.

East coast freight rates are 50% higher than west coast

Daily valuations from S&P global Commodities show a widening spread in the Flat Rate Freight Rate (FAK) spread on the North Asia-US West and North Asia-US East routes.

On Friday, North Asia-East FAK freight was $9,750/FEU, up 2.6% from the recent low on July 29. The index shows spot rates on the route have remained roughly stable since the end of April. The North Asia-West America freight rate was $6,500/FEU, the lowest since late June 2021. The spread between the two routes has been widening since May. Currently, East Coast rates are 50% higher than West Coast rates.

Congestion has resulted in significantly higher rates on the East Coast than on the West Coast, Griffiths noted.

Port congestion remains severe

The number of ships waiting at North American ports exceeded 150 in late July, according to an American Shipper survey of maritime traffic and queued vessel data. The number fluctuates daily and is currently down 15% from its peak, but remains at an all-time high. As of Monday morning, a total of 130 vessels were waiting outside the port, with East Coast and Gulf Coast ports accounting for 71%, while the West Coast accounted for 29%.

On Monday morning, 39 ships lined up near the Port of Savannah. A few days ago, that number was higher. There were 48 container ships waiting to berth near the Port of Savannah on Friday, with wait times ranging from 14 to 18 days, according to Lowe's.

Queues have dwindled at the ports of Los Angeles and Long Beach, with 11 container ships waiting to berth on Monday morning, data showed. This is the lowest value since November 2020, after reaching a peak of 109 ships on January 9 this year.

Spot freight rates are adjusted slowly and orderly

Maersk Chief Financial Officer Patrick Jany said on Wednesday's quarterly conference call that freight rates could decline in the coming months. When the freight rate stops its downward trend, it will stabilize at a higher level than before the epidemic.

Detlef Trefzger, CEO of logistics provider Dexun, predicts that freight rates will eventually stabilize at two to three times pre-pandemic levels. An executive at logistics company Seko made the same prediction at a recent briefing.

Mason's Cox said spot rates are adjusting slowly and orderly, and there will be no cliff-like declines, and liner companies will continue to put all or near-full capacity on the route.

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