Shipping company: I'm also surprised by how much the freight rates have increased!

Recent weeks have witnessed a sudden surge in container shipping rates, which has come as a surprise to Rolf Habben Jansen, the CEO of Hapag-Lloyd. In an interview with ShippingWatch, he stated, "Frankly, I am also astonished by the extent of the freight rate increase. We have seen very strong demand in the past few weeks, but the reasons behind it are still a matter of speculation."

Rolf Habben Jansen was unable to provide a definitive reason for the sudden spike in demand and freight rates. He noted that there was nothing unusual about the current demand and cautioned against getting overly excited about the robust demand seen in recent weeks. He stated that the demand trend this year has been quite normal and that it would be crucial to observe how the situation develops in the coming weeks.

However, Rolf Habben Jansen does not believe that the Red Sea crisis is the primary reason for the sudden surge in container shipping rates. He argues that although the crisis initially led to an initial increase in freight rates, they subsequently returned to normal levels. The sharp rise in demand over the past few weeks, he believes, is what has primarily driven the spike in spot rates. He attributes this growth in demand to a certain level of nervousness among shippers.

Some analysts have pointed out that the nervousness among businesses could be a contributing factor to the sudden surge in freight rates. The attacks by Houthi rebels on ships in the Red Sea have forced shipping companies to reroute their vessels, resulting in significant delays. This may have prompted more shippers to start ordering goods for the Christmas shopping season earlier, leading to an unexpected surge in demand for ocean freight.

Due to the current global shortage of container shipping capacity, international spot shipping prices have spiked significantly in recent times, rising approximately 30% over the past few weeks.

Specifically, data from the shipping benchmarking platform Xeneta shows that tensions in the Red Sea triggered a sharp increase in shipping costs earlier this year, followed by a decline. However, there were two subsequent waves of increases in late April and mid-May, with the spot rates for 40-foot containers shipping from East Asia to US East and West Coast ports averaging an increase of 1,500 USD compared to late April.

Xeneta stated that the rise in fees indicates that the spot shipping market is recovering and observed a trend of widening gaps between spot freight rates and long-term contract rates.

In contrast, long-term contract freight rates have experienced less volatility and have not witnessed the same level of spikes as spot rates. Currently, the difference between the two has exceeded 2,500 USD.

When there is a significant gap in freight rates, shipping companies tend to prioritize the allocation of capacity to spot cargo in order to achieve higher revenues. This can result in delays in the transportation of long-term cargo.

The latest surge in spot shipping prices is primarily attributed to the shortage of containers. As shipping companies avoid the Red Sea and reroute through the Cape of Good Hope in Africa, containers spend longer periods at sea and are unable to be reloaded with cargo in a timely manner.

Furthermore, according to Drewry data, 44 sailings have been canceled on major east-west routes - the trans-Pacific, trans-Atlantic, and Asia-Nordic and Mediterranean routes - over the five-week period from May 13 to June 16, 2024. This represents 7% of the total 653 scheduled sailings, potentially further pushing up freight rates.

The positive outlook in the shipping demand side has also contributed to the price increase, mainly manifesting in two aspects:

First, macroeconomic data in Europe and the United States have shown marginal improvements. The previously announced ZEW economic sentiment index for the eurozone in April recorded 43.9, reaching a 26-month high. Meanwhile, the US has ended its year-and-a-half-long destocking cycle and started replenishing inventories.

Second, due to the extended transportation time caused by rerouting, coupled with expectations of rising freight rates during peak seasons, shippers are stocking up on goods ahead of time. It is reported that rerouting on the Far East to Europe route will drive an increase in global container mile demand of 5.27%.

There are also indications that the peak season has started several months earlier than usual. The traditional peak shipping season usually falls between June and September, but analysts suggest that potential disruptions have prompted retailers to act earlier this year. Some companies fear that there may be labor strikes at ports along the US East Coast and the Gulf of Mexico after contracts expire this fall.

To ensure that seasonal products arrive early or on time, US companies have therefore placed advance orders for holiday and back-to-school products.

Moreover, extreme weather conditions have led to extended sailing times, and in order to arrive at their final destinations on time, some ships may choose to skip some intermediate ports, resulting in empty containers not being able to return to export ports in time, further affecting the supply of containers.

Notably, two major shipping giants, Maersk and Hapag-Lloyd, have raised their performance guidance for this year this month. In addition, the CEO of DHL Express's US subsidiary, in an interview with CNBC, stated that the transportation industry may face the challenge of increased demand but insufficient supply this year, and has already begun preparing for the peak season early.

The shipping benchmarking platform Xeneta warned that freight rates may further increase in early June, and spot shipping prices from the Far East to the US West Coast may exceed the levels seen during the peak of the Red Sea crisis earlier this year. Ultimately, the rise in freight rates may also affect consumer prices.

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