Spot rates from China and Asia climb new peaks

Spot rates to Europe, measured by the Shanghai Containerised Freight Index (SCFI), have risen nearly 13% in the last week, taking them above their January peaks, with momentum continuing to be strong given the current tight space situation and further rate hikes likely in the coming weeks.

At 3,045 points, the SCFI rate index is still well below it’s historic peak of 5,110 points in January 2022 in the midst of the COVID-19 pandemic, but it has been rising for ten consecutive weeks, with average spot rates almost three times higher than a year ago.

Sea freight spot rates have been rising rapidly since early April due to a combination of strong cargo demand in China and a shortage of ships.

Carriers across the big three alliances are currently short of 36 vessels to fully staff all their voyage loops from the Far East to Europe, which are being re-routed via the Cape of Good Hope, which means capacity from Asia to major markets is going to remain tight, driving up rates.

And demand is likely to remain strong, with the global manufacturing purchasing managers index (PMI) signalling a fifth successive monthly expansion of production in May, with growth the fastest since December 2021 and indicative of manufacturing output growing worldwide at an annual rate of 2%.

Economic expansion has been one driver of exports from Asia, but volumes have also been boosted by disruptive developments, ranging from fear of strikes in Canada and on the US east coast to looming new tariffs in the US.

Vincent Clerc, head of Maersk, told the Financial Times that the thing that could really make things worse for the global supply chain would be shippers ordering more than they need and that a sudden rush to order shipments for the festive period would deepen delays and congestion across the global supply chain.

US tariffs, especially those for electronic vehicles, have caused a surge in advance bookings from China, while Brazil’s plans to levy taxes on Chinese hybrid and electronic vehicles have been a driver of quadrupling FCL rates from China to Latin America’s largest economy, the report points out.

As a result, there has been no slow season since March, and rates have remained high.

The situation has been aggravated by blanked sailings, with 44 east-west cancellations Asia in weeks 21 to 25 (a cancellation rate of 7%), of which 50% are affecting the transpacific eastbound, 27% the Asia-Europe and 23% on the transatlantic.

And the situation in air freight is equally challenging, with backlogs in Singapore and tight airfreight capacity out of China, Korea, Taiwan, Indonesia, Malaysia, Thailand and Vietnam.

US Customs and Border Protection (CBP) confirmed this week that it is cracking down on ‘de minimis’ eCommerce shipments, to ensure they are compliant.

With strict inspection of shipments and documents by CBP, in particular from freighter flights originating in mainland China, congestion is likely to build at Customs warehouses and will unsettle the air cargo market on both sides of the Pacific, with some flights and charters paused.

The air and sea freight markets are particularly challenging at this time, but there is no ’silver bullet’ and many shippers that turn to the spot market are coming unstuck.

We are leveraging long-standing carrier relationships and sensible pricing, to maintain service levels and get our customers the space they need to move their shipments in good time.

To learn how we can protect your supply chain, please EMAIL our managing director, Colin Redman.