Adding insult to injury! The Red Sea crisis has not been resolved, and the shipping industry is facing strikes in the second half of the year

In the first half of this year, the shipping industry has become more complex and changeable, breaking the originally expected "oversupply" situation. Freight rates have risen again due to the combined influence of multiple factors such as the Red Sea crisis, the Panama Canal drought, and the continued trade struggle between China and the United States. 

In October last year, the armed conflict between the Palestinian armed forces led by Hamas and the Israeli army indirectly triggered the Red Sea crisis. In order to avoid potential attacks, many shipping companies chose to detour the Cape of Good Hope route, which, coupled with the impact of the Panama Canal drought, absorbed about 15% to 20% of the global shipping capacity. These factors together led to a small peak in freight rates after 2022, bringing considerable dividends to shipping companies. The Israeli-Palestinian conflict was expected to cease fire last week, which temporarily brought a glimmer of hope to the Red Sea crisis. However, the two sides then fell into a stalemate again. In addition, news that the Houthi armed group in Yemen used drones to attack merchant ships in the Red Sea has exacerbated tensions in the region. At the same time, the Shanghai Export Container Freight Index (SCFI) has risen for 10 consecutive weeks, and the weekly increase has expanded to 6.1%, showing a continued upward trend in shipping prices.

Insiders in the shipping industry poined out that the current market situation has not changed significantly in the past two weeks, and it is still facing the dilemma of "congested ports, lack of containers, and full cabins", and it is expected that the full cabin situation will continue until July. The fundamentals of the shipping market remain stable, but as the peak season in the third quarter approaches, there are market rumors that major shipping companies plan to add a peak season surcharge (PPS).

Senior executives in the shipping industry believe that the complexity of the Israeli-Palestinian war means that even if the Red Sea crisis is resolved at this moment, it will take time for the global supply chain to return to normal, and it is expected to take at least three months. In addition, as the peak season in the third quarter approaches, the freight peak brought by Thanksgiving and Christmas has begun, and the port congestion problem is difficult to alleviate in the short term. At the same time, the problem of reduced traffic caused by the drought in the Panama Canal has not been resolved, which has also brought further challenges to the shipping market.

Shipping industry insiders have a complex attitude towards the prospects of the shipping industry this year, emphasizing that it not only involves supply and demand issues, but also needs to wait and see, speculating that there are dual positive factors and a variable in the second half of the year that need to be observed.

The person believes that this year's peak season will not only be brought forward to the second quarter, but also due to the support of actual demand, the peak season performance in the third quarter will also be better than the second quarter, showing a trend of double quarterly and annual growth.

Looking forward to the second half of the year, the shipping industry is also facing a major variable. The International Longshoremen's Association (ILA) of ports along the East Coast of the United States and the Gulf of Mexico has announced that it will stop negotiations with employers, which has significantly increased the risk of a large-scale strike by tens of thousands of port workers on the East Coast.

According to industry insiders, the contract of the East Coast dock workers will expire in September, and the two sides have entered a negotiation period. The negotiations on the new contract involve issues such as wages and opposition to port automation. Although it is expected that there will be no strike before July, subsequent developments will bring uncertainty and risks to the import trade in the East Coast. In addition to the risk of strikes in the East Coast, France and Germany in Europe are also facing some variables that may cause problems in the shipping supply chain. Workers at several important container ports in France plan to protest France's decision to extend the statutory retirement age to 64, which may further worsen port congestion in Europe and indirectly drive up freight rates.

In addition, Canadian railway workers are also in strike negotiations. If the breakdown of the negotiations leads to transportation disruptions, it will have a more complex impact on the global shipping supply chain. Labor issues and strike risks in these regions are important variables affecting shipping freight rates in the second half of the year.