Analyst: The surge in freight prices seems to have been seen somewhere before

The Drewry World Container Index (WCI) (as of May 9) suddenly rose sharply by 16% week-on-week to ,159/FEU. In the week ending May 16, it rose another 11% to ,511/FEU. As of May 23, WCI rose again by 16% to ,072/FEU, an increase of 142% compared with the same period last year; it was 187% higher than the average level of ,420/FEU before the epidemic in 2019.

Among them, routes departing from China have experienced an overall increase. Shanghai-Rotterdam rose 20% to ,999/FEU, Shanghai-Los Angeles rose 18% to ,277/FEU, Shanghai-Genoa rose 15% to ,494/FEU, and Shanghai-New York rose 13% to ,463/FEU.

Drewry expects the surge in spot freight rates to subside in the coming months.

Shipping analyst Lars Jensen said spot freight rates have continued to increase significantly over the past three weeks and shippers may want to start preparing for things to get worse.

He noted that typically when shipping companies announce price increases, the impact is usually fully felt within a week or two. This freight rate has increased significantly for three consecutive weeks, which is unusual.

In January 2024, when the Red Sea crisis broke out, there was a similar large increase, but it soon weakened.

Apart from the Red Sea crisis, the only other similar increase was in 2020/2021, when the disruption of the epidemic began to show up in the market, and then, on March 23, 2021, the "Ever Given" became "stuck" in Suez in the canal, further exacerbating this disturbance.

In addition to WCI data, there are market rumors that the freight rates from Asia to the East United States and the Caribbean are quoted between US.000-11.000/FFE. It is also unknown whether anyone accepted the offers. After all, the WCI spot index is far from reaching this level, and the Shanghai-New York spot freight rate is slightly lower than 6,650 US dollars/FEU.

Based on this, it can be said that there are similarities between now and the early stages of the epidemic.

The core problem is that sailing around Africa has absorbed all the excess capacity in the market, leaving the ability to deal with any other disruptions to next to zero.

Meanwhile, congestion at key Asia ports has been worsening and is now absorbing so much capacity that there is no longer enough spare capacity in the market, as was the case during the worst of the pandemic.

A best-case scenario could see the current surge in demand - which could bring the peak season forward - then weaken and port congestion gradually improve, which would cause the market to slowly cool down. On the contrary, if demand continues to surge and port congestion is not improved, freight rates will continue to rise...

At the same time, rising freight rates have made the charter market also hot. At present, not only are small container ship rents starting to rise, but independent container ship owners MPCC can now ask for charter contracts of up to two years at higher rents. Its CEO Constantin Baack bluntly said that it has not seen this for many months. There is strong demand.

"Clearly the charter market is changing. For small container ships, a two-year charter is certainly something we haven't seen in the last 8-12 months," he said.

During the epidemic, we have also seen a large number of small container ships entering ocean routes. Currently, Hapag-Lloyd has just chartered a 3,500TEU container ship to enter the Asia-Europe route, passing through West Africa.

Overall, the current developments in the container shipping market appear to be identical to those seen during the capacity crunch that began in late 2020.

This is a surprise for the entire container shipping market! A month ago, no one would have predicted this sudden surge...

Regardless, while forecasting the second half of 2024 may be fraught with unprecedented uncertainty, it may be time for shippers to start preparing for a worse-case scenario.