In a remarkable turn of events, spot rates on the Asia-Europe trade lane are poised to surpass the unprecedented highs witnessed during the pandemic. Industry experts warn that shippers may soon face costs exceeding $20,000 per forty-foot equivalent unit (FEU) as market conditions tighten and demand soars.
The dramatic surge in shipping rates over the past month can be attributed to a confluence of factors. Jefferies, an investment bank, notes that a combination of healthy demand, constrained vessel capacity, and congestion in Asia has created a frantic pace of bookings among shippers and retailers. This pressure is exacerbated by geopolitical tensions, with the Houthis’ actions in Yemen effectively closing off the Red Sea to many in the liner community, forcing longer and more expensive routes around Africa.
Normally, the peak shipping season begins in June, but this year it kicked off early in May. This premature surge is partly due to shippers’ concerns about extended sailing times and the resulting impact on supply chains.
Analysts at Copenhagen-based Sea-Intelligence highlight that the current spike in rates mirrors the pandemic surge on the Asia-Europe route. If the rate per nautical mile matches pandemic levels, Sea-Intelligence projects that spot rates could reach staggering new highs: $18,900 per FEU from Shanghai to Rotterdam, $21,600 per FEU from Shanghai to Genoa, and $22,000 per FEU on the backhaul from Rotterdam to Shanghai. To put this in perspective, during the pandemic peak in early 2022, rates just surpassed $14,000 per FEU. There is a complete article about this here, where you can find out more details.
Sea-Intelligence suggests that carriers, having learned from the pandemic that significant and rapid rate increases are possible, may push rates even higher if the current crisis persists. The industry’s readiness to implement peak season surcharges starting in mid-June further supports this outlook, with expected increases of $1,000 per FEU on transpacific and Asia-Europe routes.
Broker Braemar’s latest container market report indicates a prevailing positive sentiment, with many expecting favorable trading conditions to continue throughout the year. Supporting this optimism, the Shanghai Containerized Freight Index (SCFI) recently surged by 140 points to 3184.87, its highest level since August 2022. Similarly, Drewry’s composite World Container Index jumped 12% to $4,716 per FEU, marking a 181% increase compared to the same week last year and 232% above the average pre-pandemic rates of $1,420.
The rapid escalation of spot rates poses significant challenges for shippers and forwarders. A survey by Freightos, a box booking platform, found that nearly 70% of Beneficial Cargo Owners (BCOs) and forwarders with long-term ocean contracts have experienced container rollovers or have been pushed to the spot market since early May. Many are now renegotiating contracts with carriers to adjust their long-term rate levels.
Emily Stausboll, an analyst at Xeneta, underscores the importance of relationships between carriers, shippers, and freight forwarders during these volatile times. “The bigger the spread between long and short-term ocean freight shipping rates, the bigger the risk of cargo being rolled,” Stausboll explains. Maintaining strong relationships and open communication becomes crucial as the market navigates these unprecedented rate hikes.
As we move further into the peak shipping season, the trajectory of spot rates will be closely watched by all industry stakeholders. The potential for rates to surpass $20,000 per container on the Asia-Europe trade lane represents a significant financial burden for shippers and could have wide-reaching implications for global trade.
In conclusion, the current surge in shipping rates on the Asia-Europe route highlights the fragility and complexity of global supply chains. With demand outstripping capacity and geopolitical tensions adding to the strain, shippers must prepare for continued volatility. The industry’s ability to adapt and maintain strong collaborative relationships will be key to navigating this challenging environment.
