Why Sea Freight Rates Increasing in 2024?

【Logistics YouTuber】 IINO san

16 Jun 202407:29

Summary

TLDRIn 2024, global supply chain disruptions and geopolitical tensions have led to a surge in ocean freight rates. The Houthi attacks in the Red Sea, increased demand due to economic recovery, and port congestion are key factors driving up costs. Despite efforts to improve efficiency, container shortages and route changes have exacerbated the situation. The future of freight rates remains uncertain, with market conditions and geopolitical developments set to influence stability.

Takeaways

📈 Freight rates have been skyrocketing as of June 2024 due to a variety of factors.
📉 In 2023, freight rates from Shanghai to North America saw a significant drop, with the Shanghai Containerized Freight Index falling from an average of 3,410 points in 2022 to 1,6 points in February 2023.
🚢 Oversupply of ships, especially the introduction of ultra-large container ships, led to low freight rates for most of 2023.
🛑 Port congestion and supply chain disruptions from the COVID-19 pandemic were gradually resolved, leading to more efficient operations and stabilized rates.
⛔ Attacks by the Houthi armed group in Yemen forced ships to take a detour, increasing operating costs and contributing to higher freight rates.
🚦 The detour via the Cape of Good Hope increased fuel consumption and extended operating times, further driving up freight rates.
📦 Container shortages at major export ports, especially in Asia, were exacerbated by the detour and increased demand.
🌐 Port congestion, particularly in Singapore, has led to longer waiting times for ships and difficulties in cargo handling, affecting freight rates.
💹 Economic growth in Western countries and increased consumption have driven up demand and contributed to higher freight rates.
🇺🇸 The US Federal Reserve's actions on interest rates and the robust US economy are influencing the demand and cost of freight.
🔄 China's focus on exports to support economic growth and the implementation of export promotion measures are impacting the freight market.
🔍 The future of freight rates is uncertain due to a complex mix of geopolitical risks, supply and demand dynamics, and market conditions.

Q & A

What was the trend of containerized freight rates from Shanghai to North America in 2023?
-In 2023, the containerized freight rates from Shanghai to North America experienced a significant drop at the beginning of the year, with the Shanghai Containerized Freight Index falling to 1,600 points in February, down from an average of 3,410 points in 2022.
What caused the initial drop in freight rates in 2023?
-The initial drop in freight rates was due to low demand and oversupply, with an influx of new ships ordered during the COVID-19 pandemic leading to an oversupply, especially with the introduction of ultra-large container ships exceeding 20,000 TEU.
How did port congestion and supply chain disruptions affect freight rates in 2023?
-Port congestion and supply chain disruptions seen at the beginning of the pandemic were gradually resolved by 2023, with port operators and logistics companies implementing measures to improve efficiency, which led to shorter transport times and stabilized rates.
Why did freight rates begin to rise again towards the end of 2023?
-Freight rates began to rise again due to factors such as attacks on commercial vessels by the Houthi armed group in Yemen, which forced ships to take a detour via the Cape of Good Hope, increasing operating costs and time.
How did the attacks by the Houthi armed group impact global shipping?
-The attacks, which targeted Israeli commercial vessels or those connected to Israel, had widespread effects, making other commercial ships potential targets and forcing them to take a longer route via the Cape of Good Hope, increasing fuel consumption and operating time.
What economic factors contributed to the rise in freight rates in 2023?
-Economic growth in Western countries, particularly increased consumption in North America and Europe, along with over-ordering by companies fearing future supply shortages due to the COVID-19 pandemic, contributed to higher freight rates.
What measures did the Chinese government implement to support exports and maintain economic growth?
-The Chinese government implemented measures such as stabilizing the Yuan, providing tax incentives to export companies, and expanding export financing to maintain the competitiveness of Chinese products and expand their market share overseas.
How is China addressing trade frictions and geopolitical risks?
-China is turning these challenges into opportunities by strengthening exports to emerging markets and countries targeted by the Belt and Road initiative, aiming to diversify export markets and reduce dependence on traditional major markets.
What factors are expected to influence the stability of freight rates in the latter half of 2024?
-Factors such as the introduction of more new ships into the market, labor negotiations on the US East Coast, container shortages, and supply chain disruptions are expected to influence the stability of freight rates.
Why might ocean freight rates not decrease during the North American Christmas shopping season?
-High demand during the shopping season, coupled with potential disruptions from unresolved container shortages and supply chain issues, makes it uncertain whether ocean freight rates will decrease.
What advice does the video offer for companies dealing with the current surge in sea freight rates?
-The video suggests that companies need to continue implementing flexible measures to adapt to the unstable freight rate trends, which are heavily influenced by market conditions and geopolitical developments.

Outlines

00:00

📈 Skyrocketing Freight Rates in 2024: Causes and Impacts

This paragraph discusses the dramatic increase in container freight rates as of June 2024. It starts with a review of the freight trends in 2023, noting a significant drop in rates early in the year due to low demand and oversupply, exacerbated by the introduction of ultra-large container ships. The paragraph then explains how geopolitical tensions, specifically attacks by the Houthi armed group in Yemen, led to a detour for ships around the Cape of Good Hope, increasing fuel consumption and operating times, and consequently, freight rates. Additionally, it touches on the resolution of port congestion issues by 2023, the economic recovery in Western countries, and the over-ordering by companies fearing future supply shortages. The paragraph concludes by highlighting the role of Singapore as a major hub port and the resulting congestion and container shortages.

05:00

🌐 Geopolitical and Economic Factors Influencing Freight Rate Trends

The second paragraph delves into the unpredictability of the surge in sea freight rates, considering the complex factors at play. It mentions the expectation of a stabilization in the supply-demand balance by the latter half of 2024 with the introduction of new ships, but also warns of potential disruptions due to labor negotiations in the US. The paragraph underscores the lasting impact of geopolitical risks, such as the Houthi attacks in the Red Sea, which have affected routing and increased operational costs. It also considers the global economic growth driving demand, the space constraints in the shipping industry, and the upcoming North American Christmas shopping season's influence on demand. The paragraph concludes by emphasizing the need for companies to implement flexible measures in response to the unstable freight rate trends and the video's intent to support viewers in their logistic roles.

Mindmap

Keywords

💡Freight rates

Freight rates refer to the charges for moving goods via various transport modes, such as sea, air, or land. In the context of the video, they are a central theme as they are soaring due to multiple factors affecting the global supply chain. The script mentions that freight rates from Shanghai to North America saw a significant drop in early 2023 but began to rise again towards the year's end due to geopolitical risks and increased demand.

💡Global supply chain

The global supply chain encompasses the network of organizations, activities, information, and resources involved in the production and delivery of a product or service. The video discusses the impact of rising freight rates on this network, highlighting how various disruptions and changes in demand have led to increased costs and potential bottlenecks in the movement of goods worldwide.

💡Shanghai Containerized Freight Index (SCFI)

The SCFI is a transportation cost index that reflects the spot rates of containerized sea freight from Shanghai to various destinations. The video script uses the SCFI to illustrate the drop in freight rates at the beginning of 2023, highlighting its role as a key indicator of market trends in the shipping industry.

💡Oversupply

Oversupply occurs when the quantity of a product or service available in the market exceeds the demand. In the script, oversupply is mentioned as a reason for the initial drop in freight rates due to the influx of new ships ordered during the COVID-19 pandemic, leading to a surplus of shipping capacity and downward pressure on rates.

💡Ultra-large container ships

Ultra-large container ships are vessels with a capacity exceeding 20,000 TEU (twenty-foot equivalent units). The video explains how the introduction of these massive ships on major trade routes between Asia, Europe, and North America contributed to oversupply, thereby increasing competition and reducing freight rates.

💡Port congestion

Port congestion happens when a port's infrastructure is unable to handle the volume of cargo or ships, leading to delays and inefficiencies. The script notes that port congestion and supply chain disruptions from the early pandemic were gradually resolved by 2023, contributing to stabilized freight rates. However, later in the year, congestion re-emerged as a factor in rising freight rates.

💡Houthi armed group

The Houthi armed group is a political and militant group in Yemen. The video describes how attacks by the Houthis on commercial vessels in the Red Sea forced ships to take a detour, increasing operating distances, fuel consumption, and costs, which in turn drove up freight rates.

💡Cape of Good Hope

The Cape of Good Hope is a significant maritime route in South Africa,绕行 which ships began to use as an alternative to the Red Sea after attacks by the Houthi armed group. The script explains that this detour increased the operating distance and time, contributing to the rise in freight rates.

💡Container shortages

Container shortages occur when there is an insufficient number of shipping containers to meet the demand for transporting goods. The video script mentions that the detour via the Cape of Good Hope and port congestion exacerbated container shortages, particularly affecting exports from China and driving up freight rates.

💡Economic growth

Economic growth refers to an increase in the production of goods and services in an economy over a period of time. The script discusses how the recovery of economic growth in Western countries, especially increased consumption in North America and Europe, has contributed to higher demand for shipping and, consequently, rising freight rates.

💡US Federal Reserve

The US Federal Reserve is the central banking system of the United States, responsible for monetary policy. The video mentions that the Federal Reserve is considering cutting interest rates to curb inflation, which is a factor affecting the economy's strength and, by extension, the demand for shipping services and freight rates.

💡Peak seasons

Peak seasons are periods of high demand for goods or services. In the context of the video, peak seasons for North American transport are typically July, August, and September, during which high transport demand is expected, further driving up freight rates.

💡Belt and Road Initiative

The Belt and Road Initiative is a global development strategy adopted by the Chinese government involving infrastructure development and investments in nearly 70 countries and international organizations. The script notes that China is using the initiative to strengthen exports to emerging markets and diversify its export markets, which is a response to trade frictions and geopolitical risks.

Highlights

C Freight rates are soaring due to various factors impacting the global supply chain.

In 2023, Shanghai to North America freight rates saw a significant drop, with the Shanghai Containerized Freight Index falling to 1,6 points in February from an average of 3,410 points in 2022.

Low demand and oversupply kept rates depressed throughout 2023, influenced by the influx of new ships ordered during the COVID-19 pandemic.

Introduction of ultra-large container ships over 20,000 TEU exacerbated oversupply on major Asia-Europe and Asia-North America routes.

Shipping companies lowered freight rates, leading to a decrease in overall market rates due to oversupply.

Port congestion and supply chain disruptions from the early pandemic were gradually resolved by 2023, improving efficiency and reducing congestion.

Towards the end of 2023, freight rates began to rise again due to attacks on commercial vessels by the Houthi armed group in Yemen.

The Houthi attacks forced ships to take a detour via the Cape of Good Hope, increasing operating distance, fuel consumption, and costs.

The detour reduced the turnover rate of containers, exacerbating container shortages at major export ports in Asia, especially for exports from China.

Port congestion contributed to rising sea freight rates, with many ports struggling to cope with the surge in transport volume.

Singapore, as a major hub port in Asia, is experiencing strained port facilities and workforce, causing congestion and worsening container shortages.

Economic growth in Western countries, particularly increased consumption in North America and Europe, is driving higher freight rates.

Companies over-ordered in fear of future supply shortages, contributing to the surge in export demand and higher freight rates.

The US Federal Reserve is considering cutting interest rates to curb inflation, but the economy remains strong with robust demand.

China is implementing export promotion measures to maintain economic growth amidst domestic demand slump and trade frictions with the US.

China is strengthening exports to emerging markets and countries targeted by the Belt and Road initiative to diversify export markets.

The surge in sea freight rates is expected to last due to complex factors, with predictions of stabilization in the latter half of 2024.

Geopolitical risks, route changes, increased global demand, rising operational costs, and space constraints are key factors driving up freight rates.

The current surge in sea freight rates is a result of supply chain disruptions influenced by various factors, including the Houthi attacks in the Red Sea.

Companies need to continue implementing flexible measures as stabilizing freight rates will take time and be influenced by market conditions and geopolitical developments.