Rate pressure on key global trade routes reaches boiling point

The Red Sea crisis has sent shipping rates soaring over the past two months, but there are signs that upward pressure on shipping rates on key trade routes may have peaked.

Freight rates on the Asia-to-US ocean lanes are starting to fall, according to a February 17 analysis of the latest cargo data from Xeneta, a leading air and ocean freight pricing platform. Rates in Europe and the Mediterranean began falling in late January. If the latest declines hold, they will come as a relief to US shippers, who have seen their Far East-to-US ocean freight rates rise in the general range of 146% (East Coast) to 186% (West Coast) as a result of the Red Sea attacks.

Illustration photo, source CNBC

The reversal in shipping rates comes despite maritime threats to global commercial shipping companies showing no signs of abating. Most recently, the UK Maritime Trade Authority said a bulk carrier was hit by a missile off the coast of Aden, Yemen, causing minor damage to the vessel, though no crew members were injured. It marked the 48th attack on a commercial vessel since November 19 last year.

According to new data provided by Xeneta on February 17, container rates fell slightly from $6,260 per 40-foot container (FEU) on February 1 to $6,100 on February 15. Far East to US West Coast rates fell from $4,730 per FEU to $4,680 per FEU over the same period. The data suggests that the highest spot rates from the Far East to the US may have been reached after spot rates since the last General Rate Increase (GRI) was implemented in early February.

Emily Stausbøll, market analyst at Xeneta, explains that early signs point to further softening in the market over the next 10 days. Xeneta’s data is compiled from over 400 million crowdsourced data points. While this is a welcome development for U.S. importers, spot rates on the U.S. East Coast are still up 146% from December 14 and 186% on the U.S. West Coast.

Experts say that unlike during the Covid-19 era when disruptions continued to wreak havoc, shippers and carriers now know what they are up against as ships are diverted around Africa to avoid the Suez Canal. Freight rates remain high, so the impact of the crisis is far from over and the situation could change at any time, but some order has probably been restored. The timing of the rate cuts could influence new contracts that are being negotiated between ocean carriers and shippers in early March.

Carriers will do everything in their power to keep rates high as they enter negotiations with US shippers on new contracts, but Xeneta data suggests this will be difficult and there is a chance prices will fall further over the next 10 days, as has already happened on trades from the Far East to Europe.

The drop in freight rates comes amid a recent slowdown in manufacturing demand in Asia and during the Lunar New Year period, when shipments are lower as Chinese manufacturing slows for the holiday. Volumes are expected to rise as factories resume operations, which could weigh on prices for the rest of the year.

Regardless, the next few weeks are going to be tough for both ocean carriers and shippers and could determine their fate for the rest of 2024.

Terrorist attacks by Yemen's Houthi forces on ships in the Red Sea have increased shipping costs by about 400% on some routes from China to Europe, European Economic Commissioner Paolo Gentiloni said on February 18. Europe said transit times on these routes have increased by up to 15 days. European Union officials expressed optimism that the potential impact of the trade route crisis will not have a significant impact on inflation in the EU, while acknowledging that further supply disruptions could lead to price increases.

Since the Red Sea crisis, many major shipping companies have stopped using the Suez Canal and redirected their ships around the Cape of Good Hope in southern Africa.

Average container freight rates are said to have doubled worldwide last month due to reported terrorist attacks, while fuel freight rates for specific destinations have risen to multi-year highs.

Last month, European Union foreign ministers reached an initial agreement to launch a naval operation in the Red Sea to protect commercial vessels. The proposal was made by Germany, France and Italy in response to a direct appeal from the Netherlands, whose shipping industry has faced significant consequences due to ongoing attacks.

Source: https://congthuong.vn/ap-luc-tang-gia-cuoc-tren-cac-tuyen-thuong-mai-toan-cau-quan-trong-len-den-dinh-diem-304157.html