Far Eastern rates seem to have passed their peak

The sideways movement observed last week is now transitioning into the first corrections in freight rates. Market participants confirm what the indices also indicate. Prices have declined, especially in westbound traffic from the Far East.

According to reports, space constraints in China’s main ports are currently limited – at least for those who accept the higher rates and surcharges. (Photo: IMAGO / NurPhoto)

January 29, 2024 | by Michael Hollmann (DVZ)

While it’s not a collapse, the losses are unmistakable. According to the Shanghai Index SCFI, average spot freight rates for shipments from Shanghai to Northern Europe and the Mediterranean fell by 5.6 and 4 percent to USD 2,861 and USD 3,903/TEU, respectively, last week. This suggests that the peak in rates has already been reached, even before the space shortages in the Far East are expected to worsen in the next two weeks.

Many shipping and logistics managers will be relieved that the previous peak prices during the coronavirus pandemic have not been reached anywhere near. Up to $6,000/FEU were reportedly paid in the Far East-Europe trade in mid-month, and the spot level is now trending back towards $4,000, according to agency sources.

For rates with shorter terms of up to 31 days, the benchmarking platform Xeneta reports a stabilization at around $4,800/FEU. According to reports, space shortages in China’s main ports are currently limited – at least for those who accept the higher rates and surcharges, but not for contract customers with significantly lower existing rates, it is said.

Meanwhile, cargo pressure in China is likely to ease somewhat as early as next week, shortly before the start of the New Year holidays. From then on, carriers will likely have only one goal: to prolong the expected decline in rates as long as possible. It is clear to all market participants that the gaps in ship departures due to the detours around the Cape of Good Hope will very quickly turn into planned “blank sailings.”

According to the consulting firm Drewry, a total of 14 percent of all ship departures in Asia will be canceled between calendar weeks 4 (January 22) and 8 (February 25). At the same time, the wave of newbuilding deliveries in the Far East is gaining momentum. The number of new freighters entering service this year is trending toward 500, and the relief will eventually become noticeable.

However, the appetite for capacity among the liners has initially increased even further due to the sharp rise in freight rates. Shipbrokers are currently reporting high activity in the charter market, where anything that can float is being launched. While the major top-10 carriers are primarily looking for ships to meet their weekly sailings, others need the hardware to gain a foothold.

As was the case during the pandemic, the prospect of high spot revenues is attracting newcomers – especially on the route from Asia to the Red Sea and the Mediterranean. This is where the highest rates and also the highest profits are currently being achieved – at least if the ships continue to take the shortcut through the high-risk bottleneck of the Bab al-Mandab.