May saw a major shift in market dynamics as capacity became scarce and freight rates increased at a speed matching those seen amid pandemic disruptions, and this trend continued into the early part of June. Spot rates are rapidly escalating and anecdotally there has been individual carrier requests seen to exceed 10,000 USD/FEU.

There are multiple elements to be noted in this development.

The first element to notice is that this came as complete surprise not only to the shippers but also to the carriers. When the various carriers were presenting their Q1 results in April, none of them saw this coming. Instead they saw a market that would continue to slowly abate due to the continued delivery of capacity in the rest of 2024.

What then caused this sudden problem? There are two key factors, one of which might – in hindsight – have been seen, and one that was not foreseen by anyone at all.

Port congestion has been slowly worsening for several months in key Asian ports. In May, this reached a level where substantial amounts of capacity began being removed from the market as vessels were waiting to get to berth.

It appears that in Singapore some vessels might wait as much as a week to get to berth, which is essentially unheard of in the region. In hindsight this development was visible as a slowly worsening problem, but all stakeholders apparently held the view that it could be managed and/or balanced by the continued injection of newbuild deliveries.

The second element was a sudden unexpected surge in demand from Asia to both Europe and North America. There are no hard data on this as of yet as demand data are always lagged. But it should be noted that the newest demand data from Container Trade Statistics show that global demand measured in TEU*Miles grew 24% year-on-year in April. This means that the year-on-year growth for four consecutive months has exceeded the growth seen during the pandemic spike in early 2021. It is also worth noting that this is the measurement in April before the surge the market felt in May.

In short, this means there is less capacity than there is demand in the market presently. It also means that we are now seeing some of the exact same dynamics play out as during the pandemic. The idle fleet is down to 0.6% matching the same low level as during the pandemic spike. Charter rates for vessels are increasing sharply and, at the same time, the fixture length asked for is rapidly approaching two years.

Small niche carriers are starting deep-sea services with very small ships such as Ellerman Lines offering Asia-Europe services on 2,700 TEU vessels in June and July. There is at least one forwarder in Asia that has chartered a vessel to manage some of their own Pacific sailings.

All of these elements are the same as we saw during the pandemic. The main difference being that it is all now playing out faster than during the pandemic disruptions as all stakeholders have the play-book in fresh memory.

A key learning from the pandemic is that, in essence, there is no limit as to how high the rates can go, while carriers also learned that it is possible to increase spot rate much faster than ever thought before.

If the current crisis continues – and it will, unless demand abates and Asian port congestion is fixed, or the Red Sea crisis is resolved – then it is entirely possible that spot rates will not only be able to match the pandemic records, but we might even see them exceeded.

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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