The global shipping industry experienced a significant surge in rates over the past couple of months, as an aftermath of the Red Sea crisis. Three months into this crisis, container leasing rates on the China-U.S. trade route have surged dramatically, rising by 223%. Additionally, demand for containers is expected to recover in the coming months as the U.S. economy exhibits signs of resilience, according to data presented by Container xChange.
“The gains in consumer spending and retail sales figures suggest that our industry can expect decent demand recovery for goods, which translates into relatively higher container demand on the cards, as retailers restock inventory and fulfil consumer orders,” says Christian Roeloffs, co-founder and CEO of Container xChange.
Key takeaways:
- The U.S. economy has exhibited resilience, with GDP rising at a 3.3% annual rate in the fourth quarter of 2023. This growth was fueled by gains in consumer spending, non-residential fixed investment, exports, and government spending, among other factors. Furthermore, December's personal income and spending reports reflected lower inflation and solid household spending, contributing to a positive economic outlook.
- Despite economic concerns, China is experiencing a surge in demand for ocean container freight to the United States.
- While the prospects of better container demand in the rest of the year have improved, shippers are struggling with issues like container crunch in China and three times leasing rates on key trade routes.
- The price hike was especially pronounced on routes Ex China to key destinations like New York and Los Angeles.
- On the China to North America East Coast trade route, freight rates doubled between Dec. 15, 2023 to Jan. 19 (from around $2,500 to roughly $5,000).
- Shipping lines and carriers may benefit from higher leasing rates in the short term. However, in the long run, if these elevated costs are maintained, it can increase the cost of exporting goods, potentially squeezing profit margins for manufacturers and exporters.
“Freight rates were somewhere around $2,000 back in February 2023 last year. This year in 2024, these are at $3,392 as of Feb. 9, 2024. These prices last year continued to decline after the Chinese New Year by around 30% until March 2023. If we follow the cyclic trend, then a decline of a similar magnitude in the current freight rates will lead to the prices crashing from $3,393 as of Feb. 2, 2024 to $2,300 in the coming weeks,” adds Reoloffs.
