In the latest report, analysts from shipping consultancy Linerlytica pointed out that container freight rates may decrease by 70% in the next 12 months.
Due to the sharp decline in freight rates across the Pacific and Middle East, the Shanghai Container Freight Index (SCFI) fell by 5.6% last week, indicating that shipping companies have failed to effectively prevent the downward trend in container freight rates.
The Drewry World Container Index (WCI) fell 2% last week (as of August 22) to $5319/FEU, a 48% decrease from the peak of the pandemic in September 2021 at $10377/FEU and 274% higher than the pre pandemic average of $1420/FEU in 2019.
The Drewry World Container Index (WCI) fell 3% this week (as of August 29) to $5181/FEU, a decrease of 50.1% from the peak of the pandemic in September 2021 at $10377/FEU, and 264.8% higher than the pre pandemic average of $1420/FEU in 2019.
However, Xeneta stated that the prerequisite for reducing shipping costs to this lower level may be the end of the Red Sea crisis.
Analysts from Linerlytica stated in a recent market report that container shipping companies have been struggling to prevent a decline in freight rates since the peak in July. Despite seemingly ushering in the peak season ahead of schedule, demand has still declined, coupled with the delivery of 36 new ships last month (with a total capacity of nearly 205000 TEUs), resulting in continued weakness in freight rates.
BIMCO stated in its latest market weekly report that there has been a significant increase in new container ship orders since 2021, with global new ship orders exceeding 10.47 million TEUs as of 2024. Although there were only a few new ship orders in the fourth quarter of 2023, the number of orders in 2024 has exceeded that of the entire year last year, and the overall growth trend remains strong.
BIMCO Chief Analyst Niels Rasmussen stated that the increase in new ship orders will lead to an expansion of fleet capacity, coupled with the current sluggish ship dismantling activities. In the coming years, the global container ship fleet is expected to continue to grow, especially if the Red Sea crisis ends and ship demand decreases. The combination of various factors may lead to a serious overcapacity in capacity.
However, the analysis agency continues to state that the biggest factor affecting the global container shipping market may be changes in long-term contract freight rates.
According to Linerlytica's data, "Freight futures prices continue to decline, and the willing starting freight rates for Nordic routes have been discounted by over 70% compared to current freight prices.
Linerlytica also pointed out, "According to the latest CoFIF EC contract traded on the Shanghai International Energy Exchange (INE), container freight rates are expected to decline by more than 70% by June next year. Although this decline is not as significant as the freight rate collapse at the end of 2022, current freight futures prices are expected to continue to decline in the next 12 months. It is unlikely to rebound by the end of this year, and there will be no recurrence of the freight rate rebound after this year's Spring Festival in 2025
According to the analysis by the agency, shipping companies have failed to maintain stability in spot prices. Freight rates on the SCFIS Nordic route have decreased by 12% since July and dropped significantly by 7.3% last week, following a steady weekly decline of 1-3%.
Linerlytica pointed out, "As an indicator that better reflects the actual market spot freight rates, SCFIS has been continuously declining since reaching its peak in July, especially on the US West route. However, SCFI issued a false rebound signal a week ago, with a cumulative decline of 38%.
SCFIS measures the shipping cost from Shanghai to the four major ports in Europe and the three major ports in the West and the United States, while SCFI covers a wider range of shipping routes from Shanghai to the world.
However, Peter Sand, Chief Analyst of Xeneta, a leading global benchmark and market analysis platform for sea and air freight rates, stated that the 70% reduction in contract rates is contingent upon the resolution of the Red Sea crisis and the resumption of normal navigation for ships passing through the Suez Canal.
Sander admitted, "Freight rates may find a new equilibrium point." But he also added, "The situation in the Red Sea is different from a year ago, when freight rates were declining and shipping companies were still reporting losses
Sander also stated that although the freight volume has increased, it remains the same as the freight volume in 2021 and 2022, and "this is not a demand driven market
According to Xeneta's data, the global container transportation volume (including dry goods and refrigerated containers) in the first half of 2024 increased by 6.5% compared to the same period in 2019, from 84.1 million TEUs in the first half of 2019 to 89.6 million TEUs in the first half of 2024.
Sander concluded, "As of now, due to the extended sailing distance in the Red Sea region, the market has shifted from severe overcapacity to tight supply and demand. Xeneta estimates that the standard container mile (TEU mile) in the first four months of 2024 increased by 18.3% year-on-year, almost filling the gap between demand and supply - this is evident from the current high contract and spot freight rates
Regarding the future trend of container freight rates, Linerlytica pointed out that the change in freight rates may also be affected by the direction of another important event. It stated that "another potential market disturbance factor is the planned strike of US East Coast dock workers on October 1st. If an agreement cannot be reached before then, the strike may once again push up freight rates." However, the current situation seems that the strike action of Canadian railway workers has not had a significant impact. "Last weekend's brief Canadian railway strike did not significantly increase port congestion," although ports in the Pacific Northwest are working hard to cope with the increased inbound railway cargo volume, the situation in ports in the Pacific Southwest is basically unimpeded.
However, there are also media reports that the risk of a strike by port workers on the US East Coast and Gulf of Mexico in October still exists, and if such a situation occurs, it will inevitably push up freight rates on some routes.
