As expected, July saw the overall spot rate index flattening out. The FBX comprehensive index peaked in mid-July at a level just short of $5,200 having more than doubled from $2,560 at the beginning of May. The last two weeks of July saw the level retrench ever so slightly but remain above the $5,000 level.

This development was in line with the baseline scenario, assuming that no new calamities would befall the container shipping markets. We have very likely reached the apex of the peak season, which began quite early. This was driven by shippers anxious to compensate for the much longer supply chains around Africa, as well as nervousness related to potential port congestion and other supply chain hiccups.

If nothing new happens we should expect rate levels to decline gradually until end-September where the Chinese Golden Week holiday in the first week of October traditionally spells the end of the peak season.

The newest reliability data from Sea-Intelligence shows that reliability declined ever so slightly in June, although in practical terms this implies that there was no marked change compared to May. Despite the low performance of 54% global on-time reliability, this does have the positive implication that supply chain problems did not worsen during June either.

The newest reliability data from Sea-Intelligence shows that reliability declined ever so slightly in June, although in practical terms this implies that there was no marked change compared to May. Despite the low performance of 54% global on-time reliability, this does have the positive implication that supply chain problems did not worsen during June either. Again, another indication supporting why the rate increases stalled once we got into July.

Global demand data tends to be lagged in terms of publication and the newest data are from cargo shipped onboard during May. In this case, demand measured in TEU was up 5.8% compared to a year ago, which is a respectable growth rate. However, the more important parameter is TEU*Miles, which was up 25% in May 2024 compared to May 2023 due to the shift to round-Africa services.

As mentioned, this means the baseline assumption should be that we have reached the apex of the market for now. However, there are a number of significant risk factors that must be taken into account that can dramatically alter the baseline.

Firstly, there is the element of a reversal back to using the Suez route. Should this happen, it would in the short term create significant congestion problems, especially in Europe followed by sharp drops in freight rates and overcapacity. However, events in recent weeks make this unlikely in the short term, with Houthi attacks continuing in July. The Israeli attack on the Port of Hodeidah in a Houthi-controlled part of Yemen only served to prolong a resolution to the crisis. At the time of writing, there is uncertainty relating to a possible Israeli response to the latest attack by Hezbollah. However, we might see an escalation of the conflict into Lebanon that would further prolong any timeline for a reversal back to a Suez routing.

Secondly, the most important risk element is the prospect of a strike among port workers on the US East Coast. The union agreement expires on 30 September and the union chairman has vowed to go on strike from 1 October if there is no new agreement.

Secondly, the most important risk element is the prospect of a strike among port workers on the US East Coast. The union agreement expires on 30 September and the union chairman has vowed to go on strike from 1 October if there is no new agreement. Current negotiations are halted and have been for the past month. Communication from the union over the past week has focused on providing pictures and stories glorifying strikes performed by the union over the past century, clearly aimed at creating buy-in from members to go on strike if need be.

Should we see a full strike on the US East Coast, this will create significant bottleneck issues and congestion, and cause a further round of increases in spot rate levels.

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.
 

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