 "Global ocean freight market faces high costs, Red Sea conflict disruptions")
The global ocean freight market continues to navigate significant challenges and shifts as geopolitical tensions, economic factors, and regulatory changes reshape the landscape, exacerbated by the Red Sea crisis. The latest global freight market outlook report by DHL Global Forwarding highlighted the key developments in demand, capacity, freight rates, and regulatory news impacting the industry.
The report noted that there has been a surge in demand as shippers have advanced order volumes due to the ongoing crisis, leading to a prolonged peak season traditionally seen in August at US ports. Increased demand is also driven by concerns over potential changes in customs regulations following the US election.
Additionally, wage negotiations among port workers on the US east coast are scheduled for September, driving up demand.
Capacity increase due to Red Sea crisis
However, the conflict in the Red Sea has resulted in a 17 per cent capacity increase on the Asia-Europe route, but effective capacity only grew by 2 per cent due to longer detours around Africa.
Since November last year, Houthi militias in Yemen have carried out multiple attacks on cargo ships in the Red Sea. This area, the fastest marine route connecting Asia with Europe via the Suez Canal, has become increasingly unsafe. Consequently, freighters are now taking the longer route around the Cape of Good Hope at the southern tip of Africa.
Meanwhile, the report noted rising labour tensions in German, French, and other European ports, causing port congestion to climb to an 18-month high, with further escalation expected due to labour strikes at German ports, causing omitted port calls and blank sailings.
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Increasing freight rates
The detour around Africa has increased both shipping costs and delivery times, exacerbating the challenges faced by global trade, which is still recovering from the pandemic, the Russia-Ukraine war, and a global economic slowdown.
The report highlighted that spot rates out of China continue to climb, with the Shanghai Containerized Freight Index (SCFI) recording its 11th consecutive weekly increase.
Spot rates from Shanghai to California are nearly five times higher than a year ago, the report noted. Meanwhile, a weekly Peak Season Surcharge (PSS) has been introduced on all Asia outbound trades, and there has been a significant increase in secondary trades like intra-Asia.
In its latest report, the International Monetary Fund (IMF) indicated a modest global GDP outlook amid ongoing economic uncertainties. Despite the challenges, demand for ocean freight remains robust. However, new environmental regulations are increasing operational costs, affecting freight rates.
To counter a decrease in vessel transits and revenues, the Suez Canal Authority has extended discounts for containerships on specific long-distance routes. Meanwhile, the Panama Canal Authority has raised its maximum authorised draft to 13.7 meters, thanks to an early rainy season, enabling the canal to handle thirty-two ships per day.
Global freight market outlook
The ocean freight market demand continues to exceed previous years, with growth predicted at around 5 per cent in the first half of the year. Asia outbound lanes are expected to maintain strong growth for at least the next three months, the report said.
While carriers are managing capacity amidst the current environment, with capacity shifts potentially creating challenges on currently balanced lanes, port congestion and equipment issues, especially in Asia, remain significant concerns, the report highlighted.
Meanwhile, spot rates on major East-West trade lanes are expected to continue increasing due to strong demand, tight capacity, and port congestion. This trend is anticipated to last into the third quarter before levelling out, the report said.