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A 2024 full of variables! What are the changes in freight rates?
Feb 19,2024
At the end of 2023, the trend of container freight rates staged a thrilling reversal. From the low demand and weak freight rates at the beginning of the year to the news of losses from routes and carriers, the whole market seems to be in a downturn. However, since December, when merchant ships were attacked in the Red Sea, leading to a large-scale detour around the Cape of Good Hope, freight rates on European and U.S. routes have risen sharply, doubling in the past two months and soaring to post-epidemic highs, opening a prelude to mystery and surprise for the shipping market in 2024.
Looking ahead to 2024,GeopoliticsTension, climate change, capacity supply and demand imbalance, low economic outlook and the renewal negotiations of ILA dockworkers in the East of the United States will jointly affect the trend of freight rates.. These variables are both challenges and opportunities that will determine whether the market will start another cycle of shipping miracles.
At present, the problems of the Suez Canal (accounting for about 12% ~ 15% of the global seaborne trade) and the Panama Canal (accounting for 5% ~ 7% of the global seaborne trade) have broken out at the same time. Together, the two account for about 1/5 of the global seaborne trade, resulting in delays in shipping schedule and tight capacity, further pushing up freight rates. However, it is worth noting that the rally was not driven by demand growth, but by tight capacity and high freight rates. Such a scenario could fuel inflation, and the European Union has warned that high freight rates could curb purchasing power and weaken transport demand.
At the same time, the container shipping industry is ushering in a record amount of new capacity in history, and the oversupply of capacity is becoming more and more serious. AccordingBIMCOStatistics show that the number of new ships delivered in 2024 will reach 478 and 3.1 million TEU, an increase of 41% year-on-year and a new high for two consecutive years. This led Drewry to predict that the container shipping industry would lose more than $10 billion in 2024.
However, the sudden Red Sea crisis brought about a turnaround for the shipping industry. The crisis drove a sharp rise in freight rates and offset some of the excess capacity problems. This has allowed some carriers and freight forwarders to take a breather. The earnings prospects of companies such as Evergreen and Yangming Shipping have improved, and the duration of the Red Sea crisis will have a knock-on effect on freight rates, oil prices and prices, which in turn will affect the shipping industry's second quarter operations.
Many senior figures in the container transportation industry analyzed that Europe was affected by the conflict between Russia and Ukraine and the Red Sea crisis, and its economic performance was not as expected and demand was weak. In contrast, the U.S. economy is expected to achieve a soft landing, and the people continue to consume, which makes the freight rates of U.S. routes supported and is expected to become the main force for airlines to make profits.
With the intensive negotiation of the new agreement between the US and the US long-term agreement after the year, and the risk that the US East ILA dockers' contract will expire soon and may trigger a strike (the ILA-International Dockers' Association contract will expire at the end of September. If the docks and shipping operators fail to meet the requirements and prepare to strike in October, the US East and Gulf Coast docks will be affected), the freight rate trend will face new variables. Although the Red Sea crisis and the Panama Canal drought have led to changes in shipping trade routes and longer voyages, prompting carriers to increase capacity to meet the challenges, a numberInternational think tankAnd carriers generally believe that geopolitical conflicts and climate factors will help support freight rates, but will not have a long-term impact on freight rates.
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