Capacity is tight and empty containers are in short supply! Freight rates will peak in the next four weeks!

Capacity constraints and container shortages have begun to take their toll on the shipping industry, amidst unrest in the Red Sea region, as well as a series of problems such as vessel re-routing, delays and cancellations.

According to the Baltic Exchange (Baltic Exchange) report in January, the Red Sea - Suez route "closure" has changed the basic outlook for container shipping in 2024, will lead to short-term capacity constraints in Asia.

Lars Jensen, CEO of Vespucci Maritime, noted in the report that as of mid-December 2023, the baseline outlook for 2024 is for a cyclical downturn, with freight rates expected to bottom out by the end of the first or beginning of the second quarter of 2024. However, Jensen said, "The 'closure' of the Suez route fundamentally changes this baseline outlook."

Many carriers have been forced to detour around the Cape of Good Hope due to the threat of Houthi attacks in the Red Sea (entrance to the Suez Canal). This change will affect the operating network from Asia to Europe and partly from Asia to the US East Coast, and is expected to absorb between 5% and 6% of global capacity. This should be manageable given the excess capacity that has accumulated in the market.

Jensen continued: "It is clear that the supply chain will see longer transportation times, with Asia to Northern Europe taking at least 7 to 8 days and Asia to the Mediterranean taking at least 10 to 12 days. This results in significantly higher freight rates than before the crisis and allows shipping companies to become profitable again. However, freight rates will peak in the next four weeks and then fall back to new stable levels."

In addition, Kieran Walsh, a broker at commodities and derivatives broker FreightInvestorServices (FIS), said that all routes on the Baltic Freight Exchange (FBX) have been significantly affected by the crisis. Predictably, FBX11 (China/East Asia to Northern Europe) and FBX13 (China/East Asia to Mediterranean) have seen the biggest gains.

As of January 8, 2024, the FBX11 to Northern Europe rate was $4,789, compared to just $1,446 a month earlier on December 8, 2023, and $1,446 on January 8, 2023, a year earlier. Similarly, the FBX13 to Mediterranean route, which shipped for just $1,482 on January 8, 2023 a year ago, rose to $2,299 on December 8, 2023 a month ago, and $5,202 on January 8, 2024, a year ago.

The slow movement of empty containers that was common during the epidemic will happen again.

Currently, there is a shortfall of about 780,000 TEUs of empty containers arriving in Asia before the Lunar New Year compared to usual, which is a major factor pushing up spot rates.

The director of global development at an overseas forwarder said that despite predictions over the past few weeks, the shortage could catch the entire industry off guard. Most people were unimpressed to hear the news at the time and felt it was a problem, but probably not as serious as the carriers were making it out to be. However, the director warned that despite being a modest player focusing on Asia-Europe and Mediterranean routes, the company is now experiencing the pain of a shortage of containers.

"It is becoming more and more difficult to obtain 40-foot tall containers and 20-foot TEUs at the major ports in China." He said, "We are moving empty containers as fast as we can and took delivery of the last of the newly leased containers, but as of today, there are no more new empty containers. The leasing companies have 'out of stock' signs on their doors."

A similar concern was expressed by another freight forwarder, who saw shipments from Asia to Europe as the start of a potentially more turbulent period ahead in 2024. Other freight forwarders are experiencing similar problems, with the Red Sea crisis exacerbating the structural inefficiencies of empty container transfers.

There is also feedback from freight forwarders that they have begun to notice problems with export containers from feeder ports in North China, but that the problem is not yet serious. This could signal an imminent shortage of empty containers, the forwarder added. "Someone has to pay for the higher costs", they warned.

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