The State of Global Shipping: May 2024
Ronald Spahr
International Cargo Express (ICE) - Where Freight Forwarding meets Customer Service
Given the recent surge in global events, I'd like to provide you with a timely update on how geopolitical developments and supply chain disruptions are impacting international shipping and Australian trade. We dive into:
The effects of the situation in the Red Sea are widening and continuing to cause industry-wide disruptions.
The risk zone has expanded, and attacks are moving further and further out to sea. Rerouting traffic away from the Suez Canal means longer journeys to deliver cargo, higher costs per voyage and disrupted sailing schedules. Despite liners' attempts to deploy more ships to the network and increase sailing speeds to mitigate longer voyages, Maersk recently estimated that the container industry's capacity between Asia and northern Europe and the Mediterranean would be cut by between 15% and 20% in the second quarter.
The knock-on effects of voyages around Africa include bottlenecks and vessel bunching, where several ships arrive at port at the same time overwhelming their operations - leading to equipment and capacity shortages. Consequently, ships are not coming back on time to meet their sailing schedules, causing ripple effects across several other container freight routes, even on non-Suez Canal lanes.
Liners are scrambling for containers
Container shortage is another major issue, especially out of China. The diversions around the Cape of Good Hope absorbed a significant number of boxes, while others were stranded along the supply chain or in freight hubs. Shipping these containers out may not be economically feasible, due to factors such as high transportation costs, inexpensive storage at the location, or the containers nearing the end of their operational life.
Demand has risen globally
Although the first quarter of the year is typically a weak period for container shipping, a strong rebound in cargo demand across the world is supporting shipping lines' endeavours to push freight rates up.
In the first quarter of 2024:
• Asia-Europe trade was up 9% YoY
• Asia-North America volume up 28% YoY
• Asia-Oceania 29.8% YoY
• Asia-West Africa rising 18% YoY
• Asia-Latin America volumes jumping 22% YoY
In North Europe, recent reports of tight capacity and rolled containers are being attributed to European businesses currently restocking, after being cautious last year with concerns about the economic climate.
In the US, some shippers are pulling peak season shipments forward out of concern that Red Sea diversions or potential labour disruptions at East Coast and Gulf ports might cause delays during the normal busy season.
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Jebel Ali Port in Dubai, which remains a focal point on most Indian routings, is grappling with severe port congestion and sailing delays of more than five to eight days. This is following record-breaking rain floods that drenched Dubai's freight hubs in April.
In Asia, recent bad weather caused delays in origin hubs. Fog was the main problem at ports in China, including Shanghai and Ningbo, while torrential rain and poor visibility were issues in Malaysia and Singapore. Yard congestion in Singapore also contributed to the delays - this on top of the extra 10- to 14-day transit carriers face due to diverting vessels around southern Africa.
Additionally, we still have the conflict in Ukraine and the Middle East destabilising trade in those regions and a drought limiting the number of ships that can use the Panama Canal until early 2025.
Three of the world’s key maritime choke points currently face disruption
Freight rates on the rise
As ships go further to avoid increasing piracy and conflict zones, carriers continue to apply surcharges to offset the costs of increased sailing speed, record-high insurance costs , and extra fuel. “We are currently using 40% more fuel per journey and charter rates are currently three times higher”, says Maersk.
The fact that carriers are returning to the second-hand market to buy vessels outright instead of hiring them suggests they are increasingly optimistic about the cargo demand picture, compared with six months ago, and they believe charter rates may stay at their current elevated levels for longer.
According to reports, shipping lines will continue to implement General Rate Increases (GRIs) fortnightly to the Australian FAK market.
Bottom line
"With excess container liner capacity continuing to be soaked up by the widespread vessel diversions around the Cape of Good Hope, combined with surprisingly strong demand, the recent turnaround in the fortunes of shipping lines is now expected to last into the peak season ."
Although we are nowhere near pandemic levels, the knock-on effects of the above are expected to spill over to Australia in the coming months, meaning higher freight rates, tighter capacity and longer transit times.
On the flip side, the global fleet continues to grow on new vessel deliveries, with predictions that even after the large-scale deliveries that have been fulfilled this year, the tidal wave of overcapacity is yet to come.
Only the future will say.
In the meantime, stay informed: