Since early May, the maritime sector has been grappling with capacity challenges, escalating spot freight rates, persistent port delays, and a surge in traffic volumes. Shippers, forwarders, ocean carriers, and ports are navigating a turbulent period, marked by these significant disruptions.
Shippers are increasingly struggling to secure capacity at pre-agreed contract rates. The Drewry World Container Index, which tracks the weighted average of spot rates on eight East-West routes, had shown a steady decline from $3,964 per 40-foot container in January to $2,705 in late April. However, between late April and early June, spot rates surged by 74%, leading many shippers to face Peak Season Surcharges.
Drewry has identified four primary factors behind the recent disruptions: stagnant capacity, very strong demand growth, shipper behavior, and operational disruptions. Here’s an in-depth look at these factors and their implications.
Stagnant Capacity Drewry’s data reveals that carriers have added numerous ships to their East-West services to compensate for the longer routes necessitated by the shift away from the Suez Canal. For instance, on the Asia-North Europe route, carriers increased their ship numbers by 24% and their total capacity by 17%. However, this translated to only a 2% increase in monthly effective capacity, due to the extended distances these ships must now travel.
Similarly, on the Asia-East Coast of North America route, a 9% increase in ship numbers resulted in no change in effective monthly capacity. This stagnation is a crucial factor behind the current tight capacity. Although around one million TEU of ship capacity was delivered in the first four months of 2024, it has not significantly impacted the market’s effective capacity.
Very Strong Demand Growth Transpacific and other route volumes have seen stronger demand than the previous year. According to the National Retail Federation, U.S. containerized imports in May were forecasted to reach 2.1 million TEU, an 8% increase from May 2023’s 1.9 million TEU. While this figure is still 12% lower than the peak during the pandemic in May 2022, it indicates robust demand growth.
Shipper Behavior A survey of Drewry Benchmarking Club members, which includes over 100 multinationals, indicated that many shippers are shipping earlier this year. This precautionary measure is intended to ensure timely arrivals but is also contributing to capacity issues and delays. By shipping early, shippers are adding stress to the already strained capacity and infrastructure.
Operational Disruption Port productivity has suffered significantly in recent months. The time ships spend waiting before berthing at high-volume ports has increased by 43% from the third quarter of 2023 to the second quarter of 2024, exceeding 400,000 hours. Major transshipment ports in Asia are experiencing container densities close to pandemic records. Additionally, port strikes on the U.S. East and Gulf coasts are exacerbating operational disruptions.
Large-scale changes in liner networks and the relocation of transshipment activities have not yet normalized, further constraining supply. Preliminary numbers from the Drewry Container Forecaster indicate that the supply-demand balance in the global container market has tightened.
Given these moving pieces, Drewry is assessing the likely duration of the Red Sea diversions and the impact of port congestion on supply. Various scenarios must be considered, with some negative factors expected to persist beyond this year.
Among the four factors causing the current capacity and efficiency issues, only some are expected to last longer than a year. The end of the peak season, the continuous delivery of new ships, and the reopening of the Suez Canal route could help alleviate the supply-demand imbalance.
However, the timeline for a return to normal shipping operations remains uncertain. According to a Drewry Shipper/BCO Survey conducted in June 2024, only 17% of respondents anticipate an end to Red Sea diversions before the year’s end. The majority expect normal operations to resume by the first half of 2025, with some predicting it could take even longer.
Once the Red Sea diversions end, most respondents believe it will take about three months for liner operations to normalize. This suggests a gradual recovery rather than an immediate return to pre-crisis conditions.
The ongoing disruptions in the maritime sector highlight the complexities and challenges faced by shippers, carriers, and ports. As Drewry’s analysis shows, the path to normalization is fraught with uncertainties, and stakeholders must remain vigilant and adaptable to navigate this challenging period.
Source: Drewry