Spot rates for container liner shipping take a nosedive
Chaos and even lower prices predicted
Spot rates in container liner shipping have fallen globally this week, even plunging on the Asia-North Europe trade. According to British consultant Drewry's World Container Index, the average rate for a container on the Shanghai-Rotterdam route went down by 19% compared to a week ago. Container shipping thus became $800 cheaper overnight.

If container prices continue at the same rate, in a month's time container shipping companies themselves would have to pay a bonus to their customers to still be allowed to ship containers for them. In practice, of course, the soup will not be eaten that hot: In fact, Drewry expects only a "slight" drop in the coming week, due to the Chinese New Year.
China ushers in the new year next Wednesday and traditionally attaches two weeks of festivities to it, during which people are free and economic life is put on pause, so container shipping companies in Chinese ports should not count on much cargo supply for a while.
Low occupancy rate
Capacity utilisation in container liner shipping had not been anything to write home about even in the early weeks of our own new year, so container rates had found their way down before, but the drop had not been as drastic as this week. Also on trades like Shanghai-Genua (-10%) and Shanghai-Los Angeles (-8%), this week saw a sharp bite in the rates that shipping lines can charge.
Reshuffling alliances
Apart from the annual fact that the market is taking a breather from Christmas and other western holidays, another factor at play this time is that container shipping lines are bracing for a reshuffling of alliances in container liner shipping. In a week from 1 February, Maersk and Hapag-Lloyd will launch their Gemini alliance, market leader MSC will continue on its own and ONE, HMM and Yang Ming will operate under their new alliance name Premier Alliance. In order to immediately put their best foot forward in their new alliances, the container shipping companies are putting a lot of vessel capacity on the water, making the ratio of market demand to vessel supply more unbalanced.
Back through the Suez Canal
Yet it is probably still silence before the storm, as container shipping companies are expected to find it many times harder to fill all their shipping space if the Red Sea crisis were actually to be resolved soon thanks to the truce between Israel and Hamas.
Due to the Houthi attacks on the Red Sea, container shipping companies have been taking the longer route around the Cape of Good Hope for over a year now, making good use of the many new ships they ordered after the super-profitable corona years. If they can soon return to simply sailing via the Red Sea and the Suez Canal, the container shipping companies will suddenly need much less ship capacity.
Analyst Peter Sand of Norwegian data platform Xeneta published an analysis this week predicting that a return of shipping traffic to the Red Sea will cause "chaos and collapsing freight rates".
'Extreme disruptions'
Container shipping companies like Maersk, MSC and CMA CGM have indicated that they are not ready for a major return to the Suez Canal route for the time being, and Sand says he can well imagine that. Such chaos as he expects soon was also seen over a year ago when ships made the reverse switch to the route around South Africa. Back then, it took the shipping companies months, with "extreme disruptions", to restore stability to the service, so now that everyone is used to the Cape of Good Hope route and the situation is "stable and under control", a quick return to the Suez Canal is "highly unlikely", Sand says.
At some point, when the Red Sea is truly safe again, a return is inevitable and shipping lines are faced with a huge challenge, the analyst knows. Even with global volumes expected to grow by 3%, teu-per-mile demand will fall by 11% compared to last year, Sand calculated.
Capacity through new construction
'With record numbers of newbuildings being delivered at the same time, the market will be flooded with ship capacity, requiring shipping lines to cut around 1.8 million teu to maintain the status quo,' the analyst said. Scrapping old ships, which was at a low ebb last year, is likely to increase significantly, 'and shipping companies have become much better at capacity management in recent years'. But, Sand warns, 'this is unlikely to be enough to prevent freight rates from collapsing'.
Price is still high
The prospect of further declining container rates is in itself good news for shippers, the analyst said, but at the same time, the current uncertain situation makes it "extremely difficult for those companies when entering into long-term contracts with shipping lines to know when it is best to go out to tender and what rates to charge".
The current rate of $3,600 per 40-footer, meanwhile, is 31% cheaper than a year ago and already more than halved since last summer's roughly $8,000.
The corona peak of $15,000 per container chopped much harder for shippers at the time. Yet the current price level is still historically considered high. In the years before the corona pandemic, shipping companies had to struggle to keep the rate above $1,000. A week before world health organisation WHO declared the corona pandemic in March 2020, the Shanghai-Rotterdam fare on the Drewry barometer stood at just under $1,750.
Source: NT