Nightmare! Freight rates soar to $10,000! Even paying higher freight rates won't secure a booking.

Freight forwarders are warning customers that demand for Asia-Europe sea freight is starting to resemble the peak period during the pandemic.

A British freight forwarder stated that the speed and pace of this change is shocking, once again recreating the tense situation of the pandemic peak. The forwarder warned that shipping lines are canceling FAK (Freight All Kinds) rate quotes when making bookings, while also cutting contract capacity.

"The current situation is a nightmare for importers," the forwarder described, "demand is climbing, and our customer base has grown by 10-20% year-over-year. Either customers are restocking, or due to the longer transit times around the Cape of Good Hope, they need an additional two weeks of transport buffer inventory."

Scan Global Logistics also warned customers that Asia-westbound sea freight rates are "soaring." The company stated: ongoing capacity demand, blank sailings, and pessimistic forecasts regarding the Red Sea crisis are collectively driving the rapid increase in sea freight rates.

Shipping lines are implementing peak season surcharges and GRIs (General Rate Increases) on both long-term and short-term contracts. Hapag-Lloyd, MSC, and CMA CGM have all announced rate hikes for Far East to Europe shipping. However, the British forwarder revealed that the rates announced by the shipping lines are quickly withdrawn as they are replaced by higher prices.

Additionally, the forwarder mentioned that due to market tension and strategic adjustments by shipping lines, several carriers have closed their FAK and spot booking mechanisms, which will not reopen until June or later. This means that even if willing to pay higher rates, it may be impossible to book a slot in time, further exacerbating the tight situation in the freight market.

Unrelated routes are also affected, with rates on Asia to Latin America routes rising sharply, now at $9,000 to $10,000 per 40-foot container. Capacity is being diverted to more profitable routes.

Furthermore, contract and spot rate levels are diverging, with long-term contract rates significantly differing from short-term rates, with some differences exceeding $3,000 per 40-foot DC. Shipping lines are increasingly prioritizing and loading higher-revenue cargo to mitigate poor financial performance in Q4 2023 and to some extent, mediocre performance in Q1 2024.

Container shortages and rising prices

Part of the problem also stems from container shortages. Container Xchange customers report that while inventory levels have not put significant pressure on warehouses, container prices are "continuously rising, adjusting approximately every 48 hours." This is mainly due to uncertainty related to the Red Sea situation and suppliers and sellers seeking to hedge risks.

The price of a 40-foot container has risen from $2,200-$2,300 in April to the current $2,500-$2,700. Rerouting via the Cape of Good Hope has absorbed a "considerable number" of containers, with a substantial number also being stranded locally. Due to high transport costs, relatively low storage costs, and the containers nearing the end of their service life, it may not be economically feasible to ship these containers out.

Scan Global requests customers to "understand" the current predicament and expects the situation to continue until May. The British freight forwarder further emphasized that newly added capacity has not had a positive impact on the current predicament and has not facilitated the return of containers to Asia.

The company warns that this is only the beginning of an explosive growth in capacity shortages and the acceleration of the northward shift in sea freight. Even paid participation may not save this crisis. However, the company also noted that the rate of demand decline could be as fast as the rate of growth, expecting the market to fall faster than it rose after China's Golden Week in October.

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