Ocean shipping is a crucial component of global trade ensuring the smooth and effective movement of goods from manufacturers to consumers. By volume, about 90% of goods traded globally are shipped by sea, with most of those goods by value, sailing in containers. Keep reading for this month’s ocean and air update, or stay up to date on a weekly basis with our weekly update available here.
The Freightos Baltic Index Global benchmark increased 13% to start the month on pre-Lunar New Year demand, and then eased to close the month 4% lower than at the end of December at $3,656/FEU post the LNY rush.
Another potential source of pressure on rates was avoided when the ILA union and USMX came to an agreement avoiding a January 15th strike at US East Coast and Gulf ports. Even so, the global rate remains 128% higher than in 2019 as the Red Sea crisis continues. The first phase of the Israel-Hamas ceasefire has meant a pause in Houthi attacks but carriers likely won’t return until they are convinced of longer term security in the Red Sea.
Asia – Europe and Mediterranean rates increased earlier than usual ahead of LNY because of longer Red Sea diverted voyages, with prices to Europe climbing 53% to more than $5,300/FEU from early November to December. Rates on this lane topped out at $5,600/FEU in mid-January before closing the month at $4,122/FEU, 20% lower than a month prior.
Asia to Mediterranean prices reached a peak of $5,685/FEU in mid-January and then dipped to $5,075/FEU to close the month 7% lower than December. Due to the early start and therefore likely little post-holiday backlog to clear, we may not see much of a post-LNY rebound on these lanes.
On the transpacific, we saw normal seasonality as rates increased 23% to $5,929/FEU in the first week of January but then eased to $4,938/FEU to close the month – 2% higher than end of December – as the pre-LNY rush subsided. To the East Coast, rates increased 13% in the first week to $6,934/FEU and then eased to $6,656/FEU to close January, still 9% higher than in December.
As noted, the ILA-USMX agreement – which will allow the introduction of port technology and semi-automation without job reductions – removed a potential source of disruption and rate spikes for East Coast and Gulf shippers. With the strike averted transatlantic rates also avoided disruption surcharges and remained about level at $2,172/FEU.
Transpacific prices could rebound somewhat just after LNY on some backlog of shipments not moved before the holiday, but should ease later in February. But volumes into the US are likely to remain higher than normal during the post-LNY lull as the Trump administration set the process toward tariff increases in motion with a day-one trade policy memo. Frontloading ahead of tariff increases should continue until new tariffs are rolled out or possibly called off, keeping volumes and rates higher than they might otherwise have been. Likewise, volumes and rates are likely to slump once tariffs go into effect.
And for all the ex-Asia lanes, rates remain highly elevated compared to 2019 because of the continuing Red Sea crisis. The current ceasefire has not been enough of an assurance to send carriers back through the Suez Canal. But when Red Sea transits do resume, the adjustment period to the shorter route for traffic from Asia to Europe and the Mediterranean could last for several weeks or longer. Schedule disruptions and vessel bunching in Europe and Asia as ships start arriving early will cause some congestion and delays at these hubs, which could put upward pressure on rates in the short term.
Despite some previous reports of a recent air cargo e-commerce volume slump, indications are that the surge continues though demand and rates have eased from the December peak season bump. Freightos Air Index rates of about $5.60/kg from China to the US and $3.25/kg to Europe, show end of January prices have come down from their respective $7.00/kg and $6.00/kg peaks but remain highly elevated relative to norms for this time of year due largely to e-commerce demand.
Use of expensive air cargo for low-value e-commerce goods is mainly driven by de minimis exceptions that exempt many small imports from customs filing costs and duties. But changes set in motion by the Biden Administration – as well as Trump’s interest in closing the loophole – could bar a large share of Chinese goods from using de minimis within a few months, which could have a significant impact on air cargo volumes and rates on this lane.
Multiple factors can impact operations and rates in the container shipping market.
Increases in consumer demand for goods leads to increased demand for ocean freight and can put pressure on operations and lead to higher prices as space on vessels fills up.
Examples of drivers of increased demand include typical seasonal increases like those that occur most years during the ocean peak season from about July to October to build inventory for shopping events from back-to-school through the holiday season.
But demand can also be driven by geopolitical factors like trade wars that push shippers to increase orders before new tariffs go into effect, or unique events like the pandemic that drove consumers to shift spending from services to goods as they were stuck at home.
An increase in demand and container traffic can often lead to congestion at ports, which also tends to delay vessels and reduce effective supply in the market. Congestion for other reasons – like bad weather, labor strikes that create backlogs, or unusual events like the blockage of the Suez Canal in 2021 or the Red Sea diversions in 2024 – can also lead to backlogs and congestion.
Together, increases in demand or port congestion (and the two often occur together) put upward pressure on freight rates until demand declines and/or congestion eases. Ocean carriers will increase rates by announcing General Rate Increases (GRIs) for prices on a given lane, or adding to the existing base rate through different surcharges like a Peak Season Surcharge or Port Congestion Fee.
When demand for shipping decreases, freight rates generally drop as well. Again, demand can decrease seasonally during the non-peak months of the year, or can be driven by macroeconomic factors like recession or inflation.
Carriers will try to nonetheless keep vessels reasonably full and freight rates at profitable levels by reducing capacity through decreasing the number of vessels they operate by canceling, or “blanking” scheduled sailings. Downward pressure on rates can also happen if the global fleet has grown through the building of new vessels but more quickly than demand has expanded.
The container market is considered quite a volatile one, and plenty of examples even from the last few years demonstrate that unexpected changes in demand, spikes in port congestion, or geopolitical events can disrupt operations or send freight rates spiking.
This volatility makes staying on top of trends in the market all the more important to logistics stakeholders committed to making informed decisions and creating strategies for supply chain resiliency even in times of disruptions.
As noted, multiple factors can impact the container freight market by driving changes in the supply of available capacity or demand for container shipping. These include:
Seasonal demand increases from July to October in advance of consumer events and in the lead up to the Lunar New Year holiday in China – usually in February – as shippers pull forward a few weeks of demand before manufacturing pauses over the holiday break.
Increases/decreases in consumer spending linked to general economic growth or recession or by unforeseen factors like the boost to consumer spending on goods during the pandemic.
Geopolitics can change freight dynamics too. Trade wars that result in tariffs can lead to a rush of importing activity before the tariff is rolled out. Blockages of waterways, like in the Red Sea, can also impact freight costs by causing the market to adapt.
Port congestion reduces the available supply of container capacity as vessels wait for a spot to open at a port. Congestion can be caused by bad weather, labor strikes, or even just a big enough increase in demand and traffic that can cause a backlog at ports.
Fleet growth – Ocean carriers need to determine in advance how many new vessels to order and sometimes the growth of the fleet can outpace the growth in demand. When this happens, carriers face downward pressure on rates as the market is oversupplied.
The volatility of the international freight market makes staying on top of trends in the market all the more important.
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