July and August normally mark the peak season for the global shipping and logistics market every year. However, the peak season seems to be different from the usual in 2024.
Let’s look at an example. Freight rates for shipping from China to the US are showing signs of weakness: last week, shipping rates for exports from Shanghai to the East Coast of the US dropped by 0.6%, and rates to the West Coast fell by 5.5%. This is the first time in the past three months that freight rates for both the East and West Coasts of the US have declined at the same time!
This indicates that the steady rise in the sea freight shipping rates since mid-April has come to an end. Moving forward, the shipping market is expected to go through a period of “stagflation, fluctuation, and then stabilization.”
Whether the traditional peak season’s volume can continue to sustain the high shipping rates to Europe and the US, especially the US East Coast, and whether any unexpected events occur, will be key factors influencing the future trends in shipping rates.
West Coast leads the decline: $2,000 drop in two weeks
According to the previous price hike plans of major shipping companies, starting July 1st, the freight rates for the West Coast will increase from the current $7,100-$7,500 per 40-foot container to $8,100-$8,500; for the East Coast, rates will rise from $8,300-$8,400 per 40-foot container to $10,300-$10,400.
There were even rumors in the market that Yang Ming Marine Transport and Evergreen Marine were planning to increase rates by $2,000 per container again on August 1.
Yet, in reality, the shipping companies’ price increases lasted only four days. After Mediterranean Shipping Company (MSC), which holds a 20% share of the global market, canceled its planned increases on July 1 and July 15, freight rates across the entire US route began to drop in response.
Special rates for the West Coast dropped to $5,000
There has been a wave of price adjustments in US shipping rates due to new capacity, new routes, and the entry of new players. The freight rates for large containers to the West Coast have dropped to the $6,000-$6,500 range, with some companies even offering rates in the $5,000s.
The once-high rates for the East Coast, which exceeded $10,000, have also seen a decline. The current overall rates is above $9,000 and some companies are quoting prices in the $8,000s.
In less than two weeks, freight rates for large containers to the West Coast have plummeted from $8,000-$8,500 on July 1 to the current $6,000-$6,500, marking a drop of $2,000. The outlook for the market remains uncertain and not optimistic.
Four major downward pressures on the U.S. freight market
Recent adjustments in the market are driven by multiple overlapping factors. Here are the four key negative influences affecting freight rates:
1. Relief from congestion in Singapore
Singapore opened new berths. The waiting time for vessels, which was around a week in late May, has now been reduced to less than two days, even during the current peak season.
2. Rising water levels in the Panama Canal
The water levels in the Panama Canal have risen, allowing more ships to pass through each day.
On March 15, 2024, the number of ships passing through the Panama Canal dropped to a new low of 18 vessels per day. However, since May 26, 2024, with the arrival of the rainy season, water levels in Gatun Lake and Lake Alajuela have surpassed those of the same period in 2023.
The Panama Canal has announced an increase in the number of vessels allowed to transit:
May 16: Increased to 24 ships
June 1: Increased to 32 ships
July 11: Increased to 33 ships
July 22: Increased to 34 ships
August 5: Increased to 35 ships
3. Significant increase in non-alliance shipping capacity in the market
Industry experts generally believe that shipping companies are boosting freight rates by forming alliances.
The early increase in shipping costs has attracted many independent shipping operators, who are deploying numerous vessels to compete for cargo. For example, on the West Coast route, the market share of non-alliance shipping operators has risen from a low of 15% in October 2023 to 30% now, challenging the ability of alliance shipping companies to control prices.
4. The surge in new vessels and upcoming orders: a long-term trend of oversupply
As of July 15, 2024, the global container fleet capacity has exceeded 30.22 million TEUs (Twenty-Foot Equivalent Units). In the entire year of 2023, 2.3 million TEUs of new shipping capacity were delivered, marking a recent high!
Summary
Given the current high freight rates, a decrease in prices is a certain trend.
If there are no other influencing factors, rates are likely to return to normal levels fairly quickly. Buyers who are not in a hurry to ship can afford to wait a bit longer. Those who need to ship urgently should compare prices from different shipping companies a couple of days before loading to get the best deal.
