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The Rise of Shipping Rates: How Will It Impact Your Business?

Updated: May 3

At a time when it seems like there’s a new geopolitical tension or crisis affecting major trade routes and shipping rates each week, we’re committed to reviewing the impact of these events to help traders understand what these fluctuations really mean for businesses who rely on ocean freight to move their goods.  

Rates flat but due to rise  

Generally, spot rates for shipping containers on trans-Pacific routes have gradually softened since February 2024, when we reported increases during the Lunar new year surge and following the first ships rerouted to avoid attacks in the Red Sea. According to the Drewry World Container Index (WCI), a composite of 40ft rates on key global routes is down from $3,964 in January to $2,706 at the end of April. Despite this decrease, rates remain considerably higher than in the past: around 55% higher than the same time last year and 90% higher than their pre-Pandemic equivalents.  

Since excess capacity has begun to be soaked up by longer transits around the Cape of Good Hope to avoid the Houthis in the Red Sea and increased trade volumes in Q1 of 2024, rates are expected to rise. We’ve already seen an increase in FAK (Freight all Kinds) rates over the past fortnight from many carriers, including MSC, who are charging $3,000 per 40ft on their Asia-North Europe routes. Most recently Hapag-Lloyd announced an increase from $3,100 on April 17th to $4,100 on April 26th for the same routing. Though it’s unclear by how much rates will continue to rise in the coming weeks, it appears they’re unlikely to drop any time soon since industry experts agree they’re being propped up by the geopolitical tensions reviewed below.  

Disasters and disruptions 

Baltimore bridge collapse 

We recently reported on the tragic incident which saw the MV Dali collide with the Key Francis Scott bridge in Baltimore. Industry experts at that time predicted limited disruption to freight services given the port’s relatively small contribution to US East coast container volumes. This prediction seems to have become a reality as traders shouldn’t see much, if any, fall-out from this incident. 

Red Sea crisis  

May marks the fifth month since the beginning of the Red Sea crisis. As we’ve reported, the attacks carried out by Houthi Rebels have resulted in considerable disruption to shipping globally, with most carriers now avoiding transits through the Red Sea and Suez Canal and opting, instead, for a longer ‘around Africa’ route. Recent Data from the ONS reveals that transits through the Suez Canal, a major global trade artery, have fallen by 58 percent in April 2024 compared with the same time last year. Threats that the rebel group intend to expand their operations beyond the Red Sea have been confirmed by reports that a box ship was struck by missiles in the Arabian Sea on April 26th.  

Though the alternative routing around the Cape of Africa has become habitual for key carriers by now, minimising disruptions to supply chains, this latest development calls into question the security of the alternative route and the global supply chains that are reliant on it.  


Middle East and MSC Aries  

More recently, rising tensions elsewhere in the Middle East have begun to make waves in global trade. Following escalating hostility between Israel and Iran, April 13th saw the MSC chartered and Israeli-owned MV Aries seized by Iranian marines and her crew taken hostage. Though Iran’s foreign minister has been quoted as saying the crew would be turned over to their respective embassies in Tehran, no release has taken place yet.  

Though these dramatic events have yet to make a visible impact on routes and rates, and, according to Linerlytica, only 2 percent of box ships operating in the area are Israeli-owned, it’s likely they will do little to reduce rising rates overall.  

The Bottom Line  

Whilst dropping spot rates over the previous quarter have prompted many shippers to hold out on signing long term contracts, whose rates are determined by the spot market, current increases have prompted industry insiders to advise that businesses should avoid ‘chasing the final dollar’ and consider the risk of higher costs ahead. Shippers relying on spot rates, meanwhile, should expect increases in the coming months and prepare the best they can for these. It might be worth reviewing long-term contracts and pricing more generally and, where possible, amend these to reflect the higher shipping costs likely to be borne by your business.   

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