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Ocean Freight Rates Ease but Fog of War Darkens Outlook

Data shows ocean freight rates are broadly staying the course but still up considerably from the past 12 months.

Despite the war in Ukraine and Covid lockdowns in China, the Freightos Baltic Global Index–published in collaboration with Freightos, Vespucci Maritime and Freight Investor Services–was largely stable in March, decreasing 4 percent to $9,443 per 40-foot container or equivalent unit (FEU)–still 116 percent higher than a year ago and more than six times the pre-pandemic norm.

However, expert commentary in the Baltic Global Index and a separate report from Container xChange were more concerning for shippers.

“Covid-induced lockdowns in China and the Russia-Ukraine war has torn apart the expectations of recovery of the supply chain, which has been grappling to keep up to the pressures of implications resulting from these and many more disruptions,” said Christian Roeloffs, Container xChange CEO.

Judah Levine, research lead at digital container freight platform Freightos, agreed that the slight aggregate decline masks divergent trends on different lanes driven by the latest disruptions. The mid-month Covid lockdowns in Shanghai and Shenzhen had many expecting a repeat of the last spring’s impacts from the outbreak at the port of Yantian, Levine noted.

“It was feared that ripples from the war in Ukraine, including rising fuel costs, carrier boycotts and rail-to-sea conversions, would worsen operations in Europe and put upward pressure on ocean rates, as well,” he said. “But so far, neither development has been reflected in increases in ex-Asia prices.”

China’s strategy of enacting strict containment measures alongside efforts to keep the economy and trade as intact as possible meant that the ports in Shanghai and Shenzhen operated throughout the lockdowns, Freightos reported. The availability of goods from a drop in manufacturing, disruptions to trucking and some decrease in available workforce did lead to slowdowns at ports and an increase in waiting ships and wait times, Levine said.

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“The disruptions in China…were not enough to push transpacific rates up,” he added. “Despite some signs that consumer spending may be ebbing and some reduction in congestion at Los Angeles-Long Beach, prices remain extremely elevated. Asia-U.S. West Coast rates fell 2 percent to $15,811 per FEU since last month, but are up 8 percent since the start of the year.

Drewry’s composite World Container Index (WCI) fell 1.4 percent to $8,041.50 per FEU for the week ended April 7, but was 64 percent higher than a year earlier. Freight rates on Shanghai-Los Angeles dropped 3 percent to $8,824 and Shanghai to New York fell 2 percent to $11,303 per FEU for the week. Drewry said it expects spot rates to remain stable this week.

Meanwhile, Roeloffs said logistics companies are wary of trade lanes, trade partners and shipments to and from Russia.

“Market volatility has caused uncertainties in the market, which has caused massive delays and reduced capacities,” he said. “The war has impacted Europe greatly. First, containers are stuck in the terminals waiting for transhipments to Russia and the result is a huge pileup there. The second significant impact is on the China-Europe rail. The northern corridor is still open, but volumes are massively reduced due to uncertainty in the market. That has pushed cargo toward sea freight and even in some cases towards air freight.”

Roeloffs said the impact of China’s Covid lockdowns on key markets will have wider reaching impacts leading to equipment scarcity, higher rates and worsening transpacific traffic jams.

“The problem will continue to remain after that because there are also labor union disputes in the U.S. waiting in the month of May. which historically always leads to [a] slowdown at the West Coast ports,” he said.

Peter Stallion, head of air and containers at brokerage Freight Investor Services, said the disruption to global supply chains shows no near-term signs of improving.

“Continuing covid disruption in Asia, with Chinese authorities still pursuing a ‘zero-tolerance’ policy, will continue to impact ports and factory production unless there is a radical change in approach to infections,” Stallion said. “The conflict in Eastern Europe looks set to continue, as no negotiated peace settlement or even a cease-fire looks likely at present, particularly with recent news of atrocities committed by Russian forces on the ground, occupying international political arenas.

“At present if anything looks likely it could be further sanctions on the Russian economy and individuals in response,” he added. “The knock-on effects of these two factors look set to continue to impact shipping, with congestion in ports and supply chains on both sides of the Atlantic, as well as elsewhere, particularly Asia.”