Freight rates begin to fall, container freight rates may have peaked

The extraordinary boom in the container shipping market in 2024 appears to be reaching its first turning point as shippers prepare for a tough bargaining process. Linerlytica, an Asia-based consultancy, warned that freight rates may have peaked, a prediction that was initially confirmed by the decline in freight futures markets this week. 

"Although carriers successfully pushed for a rate increase on July 1, the additional capacity in the West Coast of the United States, Northern Europe, South America and the Middle East effectively eased the pressure on these routes, resulting in cracks in the ability of shipping companies to raise prices further," Linerlytica analyzed in its latest weekly report. Despite this, the agency predicts that freight rates will remain high until the end of the peak season, which may extend until September.

In terms of specific trade routes, the last week's European Container Freight Index (SCFI) assessment value fell by 0.5% week-on-week for the first time since mid-April, mainly due to the two consecutive weeks of decline in average capacity utilization, although the latest European freight rates rebounded.

Johnson Leung, co-founder of Linerlytica, pointed out that freight rates on the Asia-Europe route have shown signs of peaking, and freight forwarders have obtained more space in new services launched this month. He further explained: "According to utilization data, the newly opened Asia-Europe route last week has led to an unprecedented downturn in Asian route capacity. The utilization rates of French Peak, owned by CMA CGM, and CGX, owned by Hapag-Lloyd, are much lower than the recent average level of Asia-Europe routes." 

Shipping operators in Asia have expressed concerns about this. Some shipping companies have bluntly stated that "shipping companies are about to collapse", emphasizing that this year's shipping boom is fundamentally different from the boom during the COVID-19 pandemic. An executive of a non-vessel operating common carrier (NVOCC) revealed that although freight rates in most regions remain strong, space rates from China to the Middle East have fallen by one-third in the past four weeks, while freight rates from Asia to Northern Europe have fallen into "stagnation."

On the trans-Pacific route, investment bank Jefferies pointed out that although freight rates from Asia to the West Coast of the United States are still at an annual high of nearly $8,000 per foot container, market signs indicate that booking prices will fall back to around $7,000 per foot container in late July and August.

Many experts in the field of container shipping consulting have also expressed their views on this. Lars Jensen, CEO of Vespucci Maritime, believes that unless there are new major failures in the supply chain, such as increased port congestion, Canadian railway strikes or the expansion of the Red Sea crisis, July is likely to be the peak of the current freight rate increase. However, he also warned that the deadlock in contract negotiations among dock workers on the East Coast of the United States may trigger a wave of strikes in the fall, becoming a new round of uncertainties affecting freight rates.

Deutsche Bank analyst Andy Chu bluntly stated that there is a bubble in the current container shipping market, and the increase in freight rates has exceeded the historical level outside the COVID-19 pandemic, which is difficult to understand.

However, not all analysts are pessimistic. Emily Stausbøll, senior shipping analyst at Xeneta, pointed out that its data showed that the average spot freight rates on the main routes to Asia in mid-July will continue to rise, which is consistent with the record global demand for shipping containers in May. She believes that as long as shippers believe that they must pay more to secure cargo space, spot freight rates will continue to rise.

Simon Heaney of British consulting firm Drewry and Dan Nash of Veson Nautical also expressed similar views, believing that freight rates will be affected by port congestion and equipment supply, while current demand remains strong and is not expected to change fundamentally this year.

In addition, the congestion at the Port of Singapore has continued to ease since May, and the time for ships to wait for berths has been greatly shortened, but ports in other regions, such as near the Cape of Good Hope, have been blocked due to bad weather conditions, further exacerbating the complexity of global shipping.