The cost of ocean container shipping has experienced a significant increase across various routes. Analysts at Drewry have identified four primary factors contributing to this surge in rates.
1. Capacity Constraints
Drewry’s analysis indicates that while shipping companies have introduced additional vessels to their East-West services, this has not sufficiently expanded effective capacity. The current routes are longer due to security concerns, such as the Red Sea situation, leading to only a marginal 2% increase in monthly effective capacity to 1.1 million TEU. This limited growth has not kept pace with demand, resulting in a bottleneck for shippers seeking to secure space at previously agreed contract rates. Carriers are prioritizing spot market transactions, which are currently more profitable.
2. High Demand
Demand for shipping services has remained robust. Data from the National Retail Federation (NRF) suggests that U.S. containerized imports in May 2024 are expected to reach 2.1 million TEU, marking an 8% increase compared to the same period last year. This surge in demand, particularly on transpacific routes, is placing additional pressure on the available capacity, contributing to rising spot rates.
3. Shipper Strategies
Some shippers are adapting their strategies in response to these challenges. According to a survey of Drewry Benchmarking Club members, which includes over 100 multinational corporations, a portion of international shippers are advancing their peak season shipments to avoid delays and ensure timely delivery. This approach, while preemptive, exacerbates the demand on already strained capacity and infrastructure, pushing rates higher.
4. Operational Disruptions
Port productivity has declined, with significant delays noted at major transshipment hubs. Drewry reports that the waiting time for vessels to berth at high-volume ports has increased by 43% from the third quarter of 2023 to the second quarter of 2024. This congestion has led to near-record levels of container density at some terminals, comparable to those seen during the height of the COVID-19 pandemic. These operational disruptions are further constraining the supply of shipping services.
Looking Ahead
Drewry projects that some of these issues, such as the addition of new vessels and potential changes in shipping routes, may begin to alleviate capacity constraints in 2024. However, the resolution of the Red Sea security concerns and the re-establishment of more efficient routes through the Suez Canal remain uncertain. Shippers are advised to anticipate continued challenges with transit times and capacity availability in the near term.
Drewry’s recent survey of its customers revealed that most do not expect the disruptions caused by the Red Sea crisis to be resolved until at least the first half of 2025. This prolonged period of uncertainty highlights the need for shippers to prepare for ongoing difficulties in securing timely and cost-effective shipping services.
Conclusion
The combined impact of stagnant capacity growth, strong demand, strategic adjustments by shippers, and operational disruptions are driving higher ocean container shipping rates. While some relief is expected as more ships come online and routes potentially normalize, significant challenges remain, particularly related to geopolitical uncertainties in the Red Sea region.
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