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 10% month on month closing May at $2,231/FEU. The rate gain was the result of the mid-month deescalation in China-US trade tensions which lowered tariff levels and spurred a rebound in transpacific demand and container rates in the second half of the month.
China – US ocean volumes had dropped sharply in early April due to the US introducing 145% tariffs on Chinese goods and China 125% on US exports. Container demand remained subdued up until a May 12th announcement that lowered the US effective tariff rate to 30% on Chinese exports with China lowering its tariffs to 10%.
Though China-US container demand dropped significantly – estimates range from 20% to 30% – in the interim, carriers succeeded in keeping transpacific container rates level at about $2,300/FEU to the West Coast and $3,000/FEU to the East Coast on extensive blanked sailings and service suspensions from early April to mid-May.
Following the deescalation, demand rebounded by 50% by some estimates – exceeding volume levels from before the April tariff announcement according to Hapag-Lloyd. By the end of the month rates had climbed 16% to $2,767/FEU to the West Coast for a 20% gain compared to the end of April, and 24% to the East Coast to $3,979/FEU for a 17% month on month increase.
The China-US deescalation period is set to expire August 14th, by which point, if a trade agreement is not reached, the parties could increase tariffs once again. This deadline has seemed to trigger an early start to the transpacific peak season as shippers rush to frontload goods before tariffs possibly increase in August.
Carriers announced significant GRIs for early and mid-June – ranging from $1,000 – $3,000/FEU for each GRI – with rates already climbing sharply in the first days of the month and likely to continue increasing as the April-May backlog is cleared and frontloading adds additional demand for the lane.
Congestion at Chinese ports and transhipment hubs in the Far East resulting from the sharp demand rebound is adding to the upward pressure on rates, as are vessels and equipment that are out of position after having been shifted to other lanes during the April demand lull.
A late-May US court decision voided most of this Trump administration’s tariffs. But an appeals court stay issued a day later will preserve the tariffs through the likely lengthy appeals process. And as, even if voided, the administration is likely to introduce tariffs through other avenues, this late-month development is unlikely to change shipper calculus of when and how much to ship.
Despite ongoing Red Sea diversions and worsening European port congestion, Asia – Europe and Mediterranean rates stayed mostly level in May – and more than 40% lower year on year –- with no signs of the Red Sea-driven early start to peak season witnessed in May a year ago.
Some carriers nonetheless announced $1,000/FEU GRIs for early June, and those rates may have contributed to a late month 9% increase for Asia – Mediterranean prices that climbed to $3,253/FEU in the last week of May for a 6% month on month gain. Asia -N. Europe rates closed the month about level with the end of April at $2,361/FEU. Reports of some shift of capacity from Asia – Europe lanes to the surging transpacific could support carrier hopes of Asia – Europe rate increases even before peak season demand picks up.
Finally, even with a July deadline for President Trump’s now 50% tariff threat for the EU as well as European port congestion, transatlantic rates eased 10% in May to $1,929/FEU, 3% higher than a year ago.
For air cargo, the late-May US court ruling likely would have removed the US’s suspension of de minimis eligibility for Chinese goods along with the voided tariffs. The suspension, which has been in place since May 2nd, has led to a big drop in B2C e-commerce volumes moving from China to the US via air cargo. Several countries besides the US are exploring making changes to their de minimis rules in response to the flood of e-commerce goods out of China using this exemption to enter these markets.
The stay of US tariffs and the de minimis suspension for China will likely keep e-commerce platforms away from the air on this lane, though the August deadline for a China-US trade deal may be driving some ocean to air shift helping to keep Freightos Air Index China-US rates elevated at $5.35/kg to close May, up from $5.14/kg the week prior.
The e-commerce shift away from transpacific air cargo is expected to have a significant impact on the market though, and is one factor in IATA’s recent projection for little to no growth in global air cargo volumes for 2025 after a 12% jump in demand in 2024
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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