Letter from the Editor

By Mark Szakonyi

The signs of the global shipping system being maxed out are plentiful .

HAMBURG , GERMANY — Well , that escalated quickly . In just several weeks , the container shipping market has turned dramatically , sending spot rates surging as demand exceeds capacity on major ocean trades .

In late April , container spot rates on the trans-Pacific and Asia – Europe were dipping as the shipping system better adjusted to the longer transits around southern Africa that were forced by fears of Houthi militant attacks in the Red Sea .

Then the worm turned . Fog slowing ship loadings at North Asia ports in late April coupled with rising demand for Asia imports to North America , Europe and Brazil pushed ship capacity and container equipment availability to the brink .

The increase in bookings in recent weeks has surprised carrier executives who spoke to the Journal of Commerce . “ We ’ re all a bit surprised by the surge in demand over the last four or five weeks ,” Rolf Habben Jansen , the CEO of Hapag-Lloyd , said in a May 30 interview at the carrier ’ s Hamburg headquarters . “ My hypothesis is that probably there ’ s still a bit of a mix between an early peak season and people trying to get stuff in early because of all the uncertainty that ’ s out there . I would be surprised if this lasts until the end of the year .” Another Europe-based carrier noted there seems to be a psychological factor , whereby shippers see others rush cargo and then join the herd .

After many lost their jobs during the COVID-19 pandemic , US logistics managers are “ traumatized ” and taking no chances of being out of stock , argues another Europe-based ocean carrier executive . Logistics managers globally “ are panicking ,” said the source , with the anxiety ratcheted up by the uncertainty that comes from elections being held in more than 60 countries this year , including the EU later this month .

Additionally , the executive says China is flooding the market with goods after losing market share to the likes of Vietnam and Mexico in recent years . And with President Joe Biden and presumptive Republican presidential nominee Donald Trump both taking cracks at Chinese trade , albeit to different degrees , US importers have incentive to move goods before possible higher tariffs take hold .

Economists are also surprised by the health of demand . US GDP growth and the scale of the US inventory drawdown “ doesn ’ t support the [ container ] growth we ’ ve seen ,” said Chris Rogers , head of supply chain research at S & P Global Market Intelligence . Nor does he think the increased activity can be explained solely by front-loading . “ It ’ s hard to see anyone in a high-interest rate environment trying to bring Christmas trees in June ,” he said .

The signs of the global shipping system being maxed out , barring the trans-Atlantic and India – US trades , are plentiful .

Singapore , the largest transshipment hub , is working through a backlog that has been delaying cargo by three to five days . Even before Asian port congestion worsened last month , delays in April had already soaked up 5.7 % of global capacity , according to Sea-Intelligence Maritime Analysis ’ recent Sunday Spotlight newsletter . Another 6 % of capacity is being absorbed by the longer transits around Africa .

Vessel capacity is at a premium , as reflected by container ship charter rates jumping 10 % week over week in late May , the largest sequential increase since August 2021 , according to Andrew Lee , an equity analyst at investment bank Jefferies . Idled global capacity is less than 1 %, according to maritime analyst Alphaliner . Equipment is also scarce , with container leasing rates for 40-foot high-cube containers in China , as tracked by Container Xchange , up 45 % between April and May .

Container spot rates are nearing pandemic levels , with Asia to North America rates for the week ending May 31 hitting levels not seen since early fall of 2022 , according to Platts , a sister company of the Journal of Commerce within S & P Global . A rush to beat impending Brazilian tariffs on electric vehicles began pushing up spot rates out of China in April . Average rates jumped 59 % to $ 6,882 per FEU in May from the prior month , according to Platts .

Intra-Asia container rates out of some trades from China hit a 30-month high in May , although the gains still pale in comparison with the doubling of rates on some Middle East trades , Nelson Sequeira , senior director at Singapore-headquartered X-Press Feeders , told the Journal of Commerce .

Barring the resumption of regular Suez Canal transits , carrier executives and forwarders expect capacity to remain tight until at least Golden Week in October . That ’ s despite another 1.8 million TEUs set to be delivered in the second half of the year , according to Alphaliner . So far , 1.3 million TEUs of capacity has come out of shipyards this year .

The criticism of carriers ’ aggressive tonnage ordering over the last year now seems particularly short-sighted .

“ I would still argue that it ’ s good to have a little bit of extra capacity compared to a situation where everything is imbalanced ,” said Habben Jansen . “ Because just look at what happened over the last three , four or five years . There is always some kind of disruption .”

email : mark . szakonyi @ spglobal . com

4 Journal of Commerce | June 17 , 2024 www . joc . com