The "crazy big cycle" has come to an end, and this year's consolidation market has ushered in a new cycle. The short-term support brought by the red sea situation at the end of the year has also raised some expectations among practitioners for the freight rate level at the beginning of next year. But if we look at the whole year of 2024, a freight forwarder told Caixin News Agency reporters, "It is still worrying."
The circumnavigation tide is here
Since the beginning of this year, the consolidation market has been in a relatively rational state. The views of most industry insiders are also focused on cautious optimism. This is mainly because the congestion problem at overseas ports has been solved, the overall supply chain has become smoother, but the demand for freight has decreased. In this context, freight rates also remained lukewarm until winter.
July September was originally the traditional peak season in previous years, but this year's market situation is different from previous years. As winter approaches, liner companies are also unable to sit still and have resorted to common methods of reducing voyage schedules and raising freight rates.
There are variables in the consolidation market in December. The cause was a series of attacks by Yemeni Houthi armed groups on commercial ships, which deterred the shipping companies from entering the Mand Strait.
Caixin News Agency reporter learned from COSCO Shipping (002401. SZ)'s ship Shibao that a "MAERSK TAIKUNG" ship, which had chosen to detour the Suez Canal from Singapore to New York due to drought and congestion in the Panama Canal, turned 180 degrees and chose to detour the Cape of Good Hope when it was about to reach the Strait of Mandela on December 15th.
Although COSCO SHIPPING SOLAR, a subsidiary of COSCO Shipping Group (601919. SH), has not yet publicly announced on its official website whether it will make a detour in the future, according to Ship Vision, its "COSCO SHIPPING SOLAR" ship was originally scheduled to travel through the Suez Canal to the port of Piraeus, but also turned in the direction of Cape of Good Hope in the Arabian Sea on the 18th.
"The alliance relationship between liner companies will also bind to liner companies' on the same ship 'to take detours or other measures," the freight forwarder told Caixin News Agency.
As a result, more and more container ships are starting to sail around the Cape of Good Hope.
According to Kuehne Nagel, as of 17:00 on December 20th, 103 container ships (including those that detour the Suez Canal from the Far East to the East) have chosen to sail around Cape of Good Hope.
On the newly launched European container route deviation monitoring application on "Ship Vision Treasure", the query results on the morning of December 24th showed that there are currently 75 container ships deviating on the European route, an increase of 10 from the previous day's query result of 65 ships. The liner companies include Herbert, Hanxin Shipping (011200. KS), Dafei, Maersk, ONE, COSCO Shipping, Mediterranean Shipping, OOCL under Oriental Overseas International (00316. HK), Evergreen Shipping (2603. TW), Yangming Shipping (2609. TW), etc.
The situation of some ships that are currently bypassing the European container route (source: Ship Vision)
How long will the sharp rise in freight rates last?
To navigate around the Cape of Good Hope, the first priority is to extend the transportation distance. De Xun stated that a ship sailing from Shanghai to New York via Suez must travel nearly 12370 nautical miles, but when passing through the Cape of Good Hope, the distance increases to about 14468 nautical miles. The transportation distance in the European direction has also significantly increased.
The transportation costs of liner companies will increase, and the effective capacity level will also decrease, resulting in a natural increase in freight rates. The official website of ZIM.US announced on the 18th local time that it will increase the FAK freight rate for the Far East Mediterranean (ZMP) route to a maximum of $5800/FEU, an increase of nearly 60% compared to the freight rate adjusted on the 14th local time.
On December 22nd, influenced by factors in the Red Sea region, the freight rates in the transportation markets of Asia Europe and other routes increased significantly, driving up the Shanghai Export Container Freight Index (SCFI). The weekly report was 1254.99 points, a month on month increase of 14.8%. Reaching the highest point of the year.
Changes in SCFI data over the past year as of December 22 (data sources: Ship Vision Treasure, Shanghai Shipping Exchange)
Recently, shipping companies have also announced another increase in surcharges.
On December 20th, DaFei announced the collection of a Red Sea surcharge (RED SEA Charge), which will take effect immediately. The standard is $1575/TEU, $2700/FEU, and $3000 per refrigerated container and special container; On December 21, Mediterranean Shipping announced the collection of Emergency Operation Surcharge (EOS), which will be charged starting from January 20, 2024, with standards of $1200/TEU, $1500/FEU, and $2000/cold box; On the 21st, Maersk also announced that it will charge a Transit Interruption Surcharge (TDS) of $200 to $450 (different container types have different prices), and from January 1, 2024, it will charge an Emergency Continuity Surcharge (ECS) and Peak Season Surcharge (PSS) for some routes, with a standard of $100 to $2000 (different routes and container types have different prices).
In addition, there are peak season surcharges for Herbert, Operational Recovery Surcharges (OCR), and peak season surcharges for Star Shipping.
A Caixin reporter searched on an online freight inquiry platform and found that the online prices (including surcharges) for multiple voyages departing from Shanghai Port to Haifa, Israel in early January 2024, which were found on December 23, have exceeded $6000/FEU (including Mediterranean Shipping, ONE, etc.), while the price of Star Shipping has risen again from the $6311/FEU seen on December 21, to $6911/FEU. Maersk's quotation also increased by $400/FEU to $7400/FEU in just a few days.
The industry also generally believes that freight rates will rise in the short term. Several freight forwarders have revealed that there will definitely be a wave of price increases in January. Perhaps affected by this, the recent consolidation index (European line) futures (EC) market has strengthened, with the EC2404 contract hitting the limit up for several consecutive trading days in recent months. On December 22, EC2404 rose 15% and EC2406 rose 12%. The stock price of Star Shipping in the United States has surged by 75.7% within a month (from November 28th to present).
However, this round of price increases also depends on the length of time that the Yemeni Husai armed forces can hold onto the throat of this sea route.
Analysts say that compared to the 6-day blockage incident in March 2021, the duration of this incident is clearly expected to exceed. Currently, two main scenarios are being considered: if the Suez Canal is completely closed for more than a month in extreme circumstances, it may lead to a reshaping of the global commodity trade network; If most ships pass normally under escort within one month, and some ships deviate. The current trend is more inclined towards the latter.
However, the aforementioned analysts told Caixin reporters that there is still uncertainty about the duration of the effects brought about by the Red Sea incident. Currently, it can only be inferred that freight rates will remain at a good level before March next year. However, what can be determined is that the European economic fundamentals are weak, coupled with the launch of a large number of new large container ships next year. After the Red Sea incident, the market will still return to a state of oversupply.
The aforementioned freight forwarders also believe that in 2024, after the geopolitical impact in the consolidation market has decreased, the overall transportation capacity remains at a high level, and the market direction remains difficult.