Higher container shipping rates are compressing ocean freight capacity, with spot prices jumping to the highest level in more than 20 months last week according to the Drewry World Container Index (WCI). A 40-foot container cost $4,072 (€3,749) on average across all trade routes, the highest since September 2022. The biggest annual changes have been recorded on routes between China and Europe, as well as China and the United States. While spot rates have not surged to pandemic-era heights, the unseasonal spike in prices has drawn comparisons to the price increases during that time.
The sudden surge in container shipping rates has been attributed to a multitude of reasons, including shippers securing space for back-to-school and holiday goods earlier than usual, more blank sailings out of Asia, little excess idle capacity of container vessels, longer transit times around the Cape of Good Hope, bad weather in Asia, and a looming strike at U.S. Gulf and East Coast ports in the fall.
While the peak season normally takes place between June and September, the increase in container shipping rates and decrease in available capacity is causing shippers to attempt to lock down space earlier than usual.
Container shipping shortages at Asian export hubs
Ocean carriers continue to avoid the Red Sea and Suez Canal transit routes due to the geopolitical unrest in the area that started in late November 2023 and has now continued for more than six months. This has delayed the return of empty containers to Asian ports, in particular to China.
In the face of longer transit times that tie up more vessels and containers, carriers have been opting to skip port calls and avoid picking up empties to keep vessels on schedule as much as possible. Both measures harken back to actions taken by carriers during the pandemic that caused global equipment imbalances during 2020 and 2021.
On the one hand, the Port of Colombo and upper Gulf ports including the Port of Jebel Ali are reportedly suffering from an excess of empty containers that are not being picked up, while on the other hand many export-heavy ports in China, Malaysia, Taiwan, and Singapore are seeing container shortages, especially of 40-foot and 40-foot high cube containers. It is important to note that not all ports and carriers are equally affected, and that the situation is very dynamic week-over-week.
Transpacific trade strong, but trade war looms
Another factor for the container shipping rate surge as well as equipment shortages is strong demand for goods coming out of Asia, with containerized exports up by 13% in Q1 2024, according to the Japan Maritime Center. U.S. imports from Asia increased by about 24% from January to April 2024, compared to 12 months ago. In addition to strong U.S. consumer demand, new potential tariffs on Chinese goods as well as a potential strike by dockworkers at U.S. Gulf and East Coast ports in the fall have all contributed to the decision by many shippers, in particular retailers, to secure space and ship goods earlier this year to avoid delays ahead of the retail peak season.
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