The Spring Festival is here: Where are container spot prices heading?

Source: 5688.cn

As the haze of the Chinese New Year celebrations for the "Year of the Dragon" unfolds from February 10th to 15th, 2024, it seems that container spot prices have finally relinquished the green sprint that began due to the interruption in the Red Sea. Is this really the case? What might happen in the future regarding freight rates?

During the 45-day period from December 15, 2023, to January 31, 2024, the world composite index surged by over 138%. The disruption in the Red Sea supply chain led to route diversions from the Suez Canal, causing freight rates to skyrocket, especially in the Asia-Europe and Asia-Mediterranean trade sectors. Since December 15, 2023, Asia-Mediterranean freight rates have exceeded $6,300, appreciating by 275%, while Asia-Europe rates reached $5,000, appreciating by 245% during the same period. In the past 45 days, trade between the United States and Asia's East Coast also increased by 115%.

However, over the last 45 days, despite an increase of about 3,500 nautical miles due to route changes, reduced services, and an approximately 14-day increase in transit time, there have been complaints and voices in the market expressing how imbalanced this growth is. Analysis and commentary have also touched on the creation of artificial demand while exploring alternative solutions such as sea-air transportation. Although the overall rise in global shipping prices is not significant, the unit shipping cost from Africa to North America has surged by 42% in the past month (according to Freightos data). Return airfare prices have also seen a surge, with ticket prices on the Asia-Europe route breaking four digits after 16 months.

As the freight deadlock during the Chinese New Year was anticipated, there might have been a rush to stock up on incoming goods from Asia if the situation worsened or remained the same. However, with the arrival of the holiday, this sprint seems to have cooled off, and all key indices showed a decline in the first quotes of February 2024. The Drewry World Composite Index fell by 4% last week, closing at $3,824. The downward costs were led by the trade routes that drove the upward trend, with Asia-Europe, Asia-Mediterranean, and Europe-Asia (return) transactions recording weekly losses of 6-8%. Asia-North America trade remained stable, with West Coast trade prices rising by 2%, while East Coast trade prices increased by nearly 0.5%. Freightos and Xeneta, quoted on the spot, also mirrored these movements. Drewry commented that with the closure of factories, the "stability" situation would continue. Interestingly, Chinese manufacturing data has remained moderately stable, with the PMI holding steady at 52.7 in January 2024.

In the 45-day period starting from February 1, 2024, the surge may be affected to adjust the previous 45 days' steep increase, but considering that demand dynamics have not truly thrived, this is not a definite reversal. After this, operators are expected to engage in rate actions, leading to a general rate increase (GRI). However, with the ongoing redirection of the Suez Canal route, the impact of additional costs such as surcharges and insurance fees will continue to play a role in pricing, simultaneously increasing transit times. The simplest and recommended approach is to have a forward-looking forecast for key items to be transported and consider the supply chain implications of various unforeseen events.

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