Ocean rate increases are spreading to non-Red Sea lanes as shipping capacity tightens, according to a new Freightos report, as Houtis attacks continue.
The online freight marketplace noted that Houthis remain undeterred and have launched multiple attacks since authorities from a group of 12 nations — including the US and UK, issued a "final warning" for a halt on the attacks — understood to be backed by a threat of strikes on Houthi targets in Yemen.
This was also followed by a China representative to the UN also calling for the attacks to end.
With the continued attacks, Judah Levine, head of research at Freightos, said six of the top ten container carriers are diverting away from the Red Sea: Maersk — which had returned and then suspended again last week — MSC, Hapag-Lloyd, ZIM, ONE and CMA CGM (though CMA CGM is still sailing some vessels through).
"Most Asian carriers — Evergreen, HMM, Yang Ming, OOCL and COSCO are not diverting, so container vessels are still using the Suez, but the total fleets of the carriers that are diverting represent 62% of global capacity," he added.
The Freightos report said COSCO has reportedly joined OOCL in ceasing Israeli port calls, possibly as a strategy to avoid becoming Houthi targets.
Higher costs from diversions
"The diversions are leading to higher costs for carriers using more fuel and more ships for the longer journeys around the south of Africa, and higher container rates for shippers," Levine said.
Freightos Baltic Index daily rates for January 8 for the ex-Asia lanes that typically use the Suez Canal and which include Red Sea-related surcharges were US$4,234/FEU to N. America East Coast, a 69% increase since diversions started in mid-December.
The report said Asia - N. Europe rates of US$4,789/FEU are 226% higher, and prices to the Mediterranean of US$5,202/FEU are 116% higher.
"Prices are likely to continue climbing in the near term as mid-month GRIs and additional surcharges come into effect," Levine said. "Backhaul rates on these lanes have at least doubled as well as carriers seek to offset higher costs."
For Asia - N. America West Coast, the Freightos report said rates have increased 74% to US$2,713/FEU since mid-December as well, with reports that prices will climb to US$5,000/FEU next week as shippers may be shifting volumes to the West Coast to avoid East Coast delays.
"Planned rate increases to the West Coast and to other lanes not directly impacted by Red Sea diversions like the transatlantic — which are set to increase "sharply" in February to at least US$5k/FEU from their current level of just US$1,240/FEU — may reflect that capacity is tightening across the market as more vessels are activated on the ex-Asia lanes," Levine commented.
The Freightos head of research added that they may also show that longer transit times and possible schedule disruptions on those lanes could lead to some port congestion at import hubs and to empty container shortages, which likewise could be felt even beyond Red Sea services.
"Demand is likely increasing as shippers try both to ship further in advance to accommodate longer transit times and to get orders out of China before manufacturing slows down over the Lunar New Year holiday that starts February 10th," Levine added.
"So, the next couple weeks will likely be the worst in terms of capacity shortages and possible congestion," he said.
As demand eases in late January, the Freightos head of research noted that the industry may have a reprieve to recover schedules, and with a typical lull in volumes following the Lunar New Year, freight rates may start to ease in late February — but should remain higher than usual until container traffic returns in full to the Red Sea.
Rates still lower compared to the pandemic
But even if rates do climb to the US$6k-USS$8k/FEU range, the Freightos report said these would be well below the US$15k/FEU level seen for Europe and Mediterranean rates and the US$22k/FEU level for N. America East Coast containers caused by the extreme surge in volumes and port congestion during the pandemic.
"Elevated freight rates are leading to expectations that carrier profitability will improve in 2024," Levine said, noting that investment bank Jeffries raised its container outlook for 2024 given the change in rate conditions and the possibility that they will lead to higher floor even as conditions stabilize.
Carrier stocks, meanwhile, are reflecting these expectations and reacting to any signs that Red Sea traffic might recover, too.
Levine noted that ZIM Lines, which is heavily exposed to the spot market, saw its stock jump 60% in December as widespread diversions began, fell double digits when Maersk announced they'd return to the Suez, and then rebounded when Maersk suspended Red Sea service again.
"Recent reports that some carriers are negotiating with the Houthis to secure safe passage for their vessels led carrier shares to drop Monday, though Maersk and Hapag-Lloyd denied they were in talks with the Houthis," the report added.
Meanwhile, Levine said longer ocean transits are expected to push some volumes to air cargo.
He noted, however, that through last week, Freightos Air Index rates for Asia - N. America were level, and N. Europe continued their decline that began in mid-December and would be typical for the weeks just post-peak season.
"Daily rates for China - N. Europe on Monday, however, climbed to US$4.11/kg, up 38% compared to the end of the year and possibly reflecting the start of an increase in demand caused by the Red Seas disruptions," Levine further added.
