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High Freight Rates the ‘New Norm’ in Global Ocean Transport

The container freight supply and demand relationship has reached a long stretch of stormy seas.

The Freightos Baltic Global Container Index climbed 38 percent in December to a new high of $3,377 per 40-foot container or equivalent unit (FEU), a 143 percent increase annually, driven by still-surging global demand and the resulting container shortage that kept rates spiking on Asia-Europe and Asia-Mediterranean lanes.

Strong demand for transpacific ocean freight is still causing congestion and delays at U.S. ports and remains the main driver of the global equipment shortage, said Judah Levine, research lead at Freightos, an online marketplace for the international shipping industry.

Prices rose about 8 percent to close the year at new highs and cross new thresholds, Levine said, with China-to-U.S. West Coast rates reaching $4,200 per FEU, 208 percent higher than a year earlier, while East Coast rates ended at $5,405 per FEU, 110 percent above year-ago levels, “perhaps indicating that any tacit agreement may be coming to an end as additional pre-Chinese New Year demand begins to build.”

Drewry’s composite World Container Index (WCI) increased 19.8 percent to $5,220.99 per FEU for the week ended Jan. 7, which was 185 percent higher than the same period in 2020. The average composite index of the WCI for year-to-date was $5,221 per 40-foot container–$3,652 higher than the five-year average of $1,569 per FEU. Drewry expect rates to remain on higher side this week.

“Sustained demand for increasingly scarce empty containers and other equipment kept rates spiking on the other major ex-Asia lanes,” Levine said. “Asia-North Europe rates finished the year at an incredible $5,662 per FEU, and Asia-Mediterranean prices closed at $5,644 per FEU, with both lanes about doubling in cost” in December.

He noted that the Asia-U.S. East Coast lane is typically the most expensive ex-Asia route, with rates an average of about 50 percent higher than prices for Asia-Europe and 35 percent more than Asia-Mediterranean. But the pandemic-driven shift in trade patterns that has kept trade surging since the summer saw another unpredictable end to 2020 in which containers from Asia to North Europe and the Mediterranean were about 5 percent more expensive than their U.S. East Coast counterpart.

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“Vaccine campaigns already underway that get people–and their spending habits–out of their homes and back to normal, could finally lead to an easing of demand, congestion and possibly ocean rates, but how soon and what the new normal may look like of course remains to be seen,” Levine added.

Lars Jensen, CEO of SeaIntelligence Consulting, writing in the Freightos report, said, “it would be erroneous to believe that once the pandemic is over then the container markets would become stable and predictable.”

That’s because the container shipping market has always had a relatively high level of unpredictability, particularly when there are large changes in market elements, he said. It has also become the new norm that schedule reliability changes more than 25 percent within a year on most deep-sea trades, and it is increasingly typical to see cancellations of individual sailings.

Peter Stallion, head of air and containers at Freight Investor Services, said the focus for 2021 has shifted. For the carriers, the priority will be placed on locking in as much business as possible at the ‘new-normal’ market level.

“Reliance on traditional fixed-price contracts, in our opinion, may look good for the moments when the underlying market remains stable,” Stallion said. “However, [they] risk falling into the trap of becoming highly ineffective against forward market volatility. Contract performance remains a critical issue. For contract buyers, any form of long-term contract might increase exposure to a drop in the market rates, as buyers end up stuck with premium contract prices or do as many always have done and drop out of contracts entirely.”