Seatrade-Maritime: As container line reliability drops freight rates increase

Published by Seatrade-Maritime

As rates rise on-time arrivals by ships at their destination ports decrease, leading to the phenomena of shippers essentially paying more for a worse service.

In 2020, when the Covid pandemic hit freight rates, spot and contract, hovered at an average $2,000 per feu, reliability was over 70% at that time. By mid-2021 spot rates had peaked at over $7,000 per feu and long-term rates, more than three months, at over $6,000 per feu. Reliability, meanwhile, had cratered at 20%.

Similar effects, if not quite so stark, can be seen in later periods when a crisis has hit, including the El Nino inspired Panama Canal drought in 2023 and the Red Sea crisis which began in late 2023 and has spread into a wider Middle East crisis today.

“Container shipping is arguably the only industry where higher prices correlate with worse customer service,” noted freight intelligence platform Xeneta.

That pattern is due to continue on the North Europe and Mediterranean trades, with Hamburg experiencing an increase in congestion due to a pilot strike while both Rotterdam and Antwerp have seen low water levels that are driving up congestion.

Delays and reliability will suffer in such a climate and the inevitable rate increases were seen this week with demand up, FAK rates increased in mid-May and both Linerlytica and Drewry reported a 15% surge in spot rates to North Europe and a 10% boost to Med rates.

Carriers are preparing to add increases to Pacific rates too, said Linerlytica, restricting named account space and “prioritising higher-margin FAK volume while also pushing up the May rate hikes in order to set the stage for Peak Season Surcharge (PSS) implementation from 1 June.”

Drewry’s Container Capacity insight is forecasting just three blanked sailings for the coming week, on the Asia to Europe trades, with the consultant saying that there is, “Higher capacity deployment to accommodate peak season cargo.”

Drewry analyst Simon Heaney told Seatrade Maritime News: “The current upswing in spot container freight rates is continuing longer than expected due to an early peak season, particularly on the Asia-Europe trade.”

According to Heaney some carriers have announced peak season surcharges and higher terminal handling charges, which are additional to previous increases in exceptional fuel surcharges. 

However, Heaney added: “Drewry does not expect spot rates to keep increasing much longer.” 

In fact, for some carriers, Maersk and Hapag-Lloyd in the Gemini Cooperation, they are “Continuing to under-perform the rest of the market,” according to Linerlytica, as their losses are expected to continue to throughout this year.

Maersk has announced a non-Gemini extra-loader on the Pacific starting next month in anticipation of a peak season surge in demand in an apparent attempt to reduce the losses.

Freight rate levels on the Pacific trades to both US coasts are stable, West Coast rates were up 1%, while East Coast rates managed a 2% boost.

Not everyone is convinced that there will be a peak season, however, with Xeneta’s chief analyst Peter Sand commenting: “As for the peak season – no need to expect much change around that. At least in terms of timing. Whether the strong start to the year will translate into a weaker peak season is possible but not carved in stone just yet – despite the economic headwinds that everyone is suffering at the moment since the outbreak of the Middle East conflict.”