June saw further tightening of the market conditions on the key deep-sea trades. Spot rates and associated surcharges kept increasing every week throughout the month, and the pace of the increases in the main followed the exact same pattern as seen during the first growth phase of the pandemic. The question is thus whether this will continue or whether we will soon see a market reversal.

There are three current drivers behind the spiking markets: the diversion of major vessels around Africa, port congestion in Asia and a spike in export demand out of Asia. In the short term, it is difficult to see a resolution to the Red Sea crisis. Port congestion in Asia is partly a consequence of the Red Sea crisis. Hence if the demand boom is “merely” an early peak season driven by supply chain concerns, we should expect July to be the peak of the market strength. However, this also means that the abatement in market conditions could be relatively slow into the latter part of what is the usual peak season until the end of September.

In Q4 and 2025, the primary issue remains the Red Sea crisis. Should the diversions continue, the global supply-demand balance will continue to gradually ease as more new vessels are delivered from the yards. This will create a better market balance but not lead to a situation of overcapacity and collapsing rates – as long as demand exhibits normal growth.

In Q4 and 2025, the primary issue remains the Red Sea crisis. Should the diversions continue, the global supply-demand balance will continue to gradually ease as more new vessels are delivered from the yards. This will create a better market balance but not lead to a situation of overcapacity and collapsing rates – as long as demand exhibits normal growth.

A re-opening of the Suez route and/or a collapse in demand would see the reversal to overcapacity, but this appears unlikely in the short to medium term.

In September, the risk of labour disruptions on the US East Coast in the form of go-slow actions or an outright strike is very real and has to be taken into account given the breakdown in negotiations between the union and the terminals in June. Should we see a strike on the US East Coast, this will dramatically worsen the global supply/demand dynamics as it will create significant port congestion and vessel delays.

During the pandemic, freight rates increased in two stages. Stage one was late 2020 and early 2021 driven by the initial pandemic ripple effects. Early spring 2021 saw markets stabilize and rates abate slowly. When Ever Given got stuck in the Suez Canal, this triggered the second stage of rate increases leading to extremely tight markets in late 2021 and early 2022 and record rates in the 15.000 USD/FFE range on some trades.

Should we get a strike on the US East Coast in September, this could well trigger the same effect and market stakeholders would face a similar second phase, with rates once more reaching such record-high levels.

Should we get a strike on the US East Coast in September, this could well trigger the same effect and market stakeholders would face a similar second phase, with rates once more reaching such record-high levels.

Hence in the short to medium term, stakeholders should keep an eye on two pivotal elements. Will the demand boom abate during July indicating that it was merely early pre-positioning of cargo?  If it doesn’t, then the demand boom might be more sustained, in which case July is not the peak of the market. The other pivotal element is to keep a watch on the union negotiations on the US East Coast.

When looking for the longer perspective, it is time for stakeholders to contemplate a scenario where the major container vessels continue around Africa not for a few more months but for several years to come. Conflicts in the Middle East tend to be resolved only on very long timescales and it is evident that the Western military presence has failed to change the situation in the southern part of the Red Sea and the Gulf of Aden. It is possible that this could persist for several years to come and, as a consequence, shippers need to contemplate how to structure not only their supply chains but also their sourcing patterns should such a scenario unfold.

About Lars Jensen, CEO, Vespucci Maritime

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 20 years’ experience hereof the last nine within multiple companies he has founded, with the main focus as CEO of Vespucci Maritime.
 

Receive monthly container market reports direct to your inbox.