Navigating the Challenges of Peak Season in Container Shipping

As container shipping and its global transport networks enter the typical peak season for demand, this year brings significant uncertainties surrounding supply.

Red Sea vessel diversions and port congestion have absorbed any excess capacity that existed at the end of 2023, exacerbated by the disruption to shipping in the Red Sea. Spot container rates have doubled since early May.

In Singapore, which serves as a critical transfer hub between Asia and the West and the world’s second-busiest port, delayed shipments increased by 44% in May compared to the previous year, and as of June 25th, delays were up 27% year-over-year.

Globally, containers are entangled in delays, and a shortage of empty shipping containers in key export markets is a growing concern. We should anticipate a few more months of strain.

Demand Surge and Market Pressures
Adding to the bottlenecks is a demand surge driven by the fear of missing out, a behaviour developed during the pandemic. Imminent US tariffs on Chinese imports and the potential for a late-summer strike at East and Gulf coast ports are prompting earlier-than-usual orders.

Spot container rates from Asia to Europe and the US could soon reach $10,000 per 40-foot container. While a confluence of disruptive factors would be required for rates to return to pandemic highs of $15,000 to $20,000, this scenario is not impossible. Significant pressure over the next few months could push rates to $15,000 per container, though this surge is expected to be shorter-lived than during the pandemic.

Capacity Expansion Efforts
Market analysts acknowledge that it was virtually impossible for container shipping lines to proactively deploy more capacity ahead of the current surge in demand to prevent ongoing capacity shortages and rate spikes. However, carriers are planning to increase capacity on the main East-West trades.

On the Asia-Europe route, a sharp capacity increase is planned for the first two weeks of July, followed by a capacity growth of around 6% year-over-year for the rest of July and August. The trans-Pacific route will see a significant capacity increase sustained through mid-August.

The success of these capacity expansions in alleviating market pressure depends on whether growing port congestion will allow carriers to operate according to their planned sailing schedules.

Outlook for Sea Freight in H2 2024

Worst Case Scenario
Ships continue to avoid the Red Sea, early peak-season demand remains strong, and port congestion lingers for months, extending global disruptions past the Chinese Lunar New Year in late January 2025. A strike by dockworkers on the US East and Gulf coasts would push container rates back to pandemic highs.

Best Case Scenario
Disruption in the Red Sea cease, thereby allowing carriers to resume optimal sailing schedules. After a few months of adjustments, cargo rates drop sharply as supply surpasses demand. Newly built ships entering service help push the cost for a 40-foot container back to pre-pandemic levels around $1,000 between Asia, the US and Europe.

Most Likely Scenario
Current strong demand softens, indicating that early peak-season orders were pulled forward from Q3 and Q4 due to looming US tariffs on Chinese imports, Red Sea delays, and port strike concerns. Spot rates might peak around $10,000 per 40-foot container in Q3 but are expected to decrease later in the year.

Ensuring Resilient and Reliable Solutions
Regardless of how the sea freight market evolves, our contracts with shipping lines protect space and rates. This allows us to consistently deliver cost-effective, resilient, and reliable ocean freight solutions across all trade lanes.

For any questions or concerns about these issues or to discuss their wider implications for UK and European shippers, please EMAIL Matt Fullard.