State of Freight: Analysts expect shipping rates to remain high despite hints of end to peak season

A fall in sea rates is not expected to bring prices down to what they were last year, according to industry experts, as the shipping market remains in a state of flux as a result of geopolitical tensions.

Since the start of the Red Sea crisis, rates have remained stubbornly high, adding to fears over high inflation and cost of living.

Falling rates

Key indicators have shown that prices are starting to fall, suggesting the end to a peak season, but rates still remain higher than they were in 2023.

The Shanghai Containerized Freight Index, which tracks the spot market on one of trade’s most important routes, was over US$3500 for a twenty-foot equivalent unit (TEU) in June 2024, compared to just over $950/TEU at the same point last year.

The Drewery World Container Index decreased 2% to $5,428 per 40ft container, with spot rates along most major routes falling or holding steady.

Even with the fall, Drewery’s index is still 282% more than the average 2019, pre-pandemic rate of $1,420.

Capacity

Capacity is still constrained despite carriers using more vessels, as many of those ships are being diverted away from the Red Sea on lengthier journeys.

“This has absorbed excess capacity that was in the market before the Red Sea crisis”, said Freightos head of research, Judah Levine, on a webinar yesterday (15 August).

Data from Freightos showed that there has been a 20% fall in rates since the peak period earlier in June.

Rates are predicted to remain high throughout the year, even assuming that the Red Sea update is resolved, according to Levine. If the crisis remains, then rates may return to the levels seen earlier this year.

Tensions in the Red Sea and wider Middle East show no signs of abating, as attacks by the Houthi rebel group continue.

As recently as Monday (14 August), two ships were attacked by drones according to the UK Maritime Trade Observatory. No damage or casualties were reported.

Backlogs remain

Certain hubs, used more since the beginning of the Red Sea crisis, are reporting delays as vessels wait for slots.

Singapore is reporting a two-day delay period for vessels arriving, while hubs further down the chain in China are experiencing 12 hours delays.

This is an improvement, however, from June, when ports in Asia were reporting longer wait times.

Earnings reports

In its half-year financial report, Hapag-Lloyd raised its earnings outlooks for the year, fuelled by stronger than expected demand and freight rates.

However, the shipper warned that this outlook was “subject to a high degree of uncertainty” and occurred as group revenue fell by 12%, to €8.8bn.

DP World also said that revenues were up by 3.3%, but that earnings before tax, interest and depreciation had fallen 4.3% on last year.

“The year 2024 has been marked by a deteriorating geopolitical environment and disruptions to global supply chains due to the Red Sea crisis,” said group chairman Sultan Ahmed Bin Sulayem, in the half yearly report.

He described the results as “resilient” and “positive” but admitted that the “near-term trading outlook remains uncertain due to macroeconomic and geopolitical headwinds”.

Pandemic era feeling

While the outlook does appear to be improving, it still remains in a better situation than during the peak of the Covid era.

Peter Goodman, a New York Times journalist, said on Freightos’ webinar that “it’s clear that things aren’t as bad now as they were” in the middle of the Covid-19 pandemic.

“A lot of the global economy is essentially at the mercy of this lightly regulated international shipping cartel that has enormous pricing power.”

The pandemic was a “once in a lifetime pricing opportunity”, with customers willing to pay “whatever it took” to get cargo on board vessels and c-suite executives remaining troubled by this experience.