The freight rates for container ships on routes from Shanghai to South America and the Middle East have increased by 20-30% compared to the end of March. In addition to the strength of cargo traffic, the reduction of voyages by container shipping companies has also led to tight supply and demand. It seems that due to environmental protection policies, many ships have shifted to major shipping routes with heavy traffic to the United States.
Spot (instant contract) freight rates from Shanghai to South America were $2,305 per 20-foot container in the second week of June, according to the Shanghai Shipping Exchange. It is up 34 percent from the end of March, when the rebound was notable. It reached its highest level in about six months since mid-November 2022. Shipping from Shanghai to the Middle East costs $1,280, up 23%. Freight to the West Coast of Africa (Lagos) was $2,762, with the bottom half of March, showing a rebound trend.
Large container shipping company revealed, “Shipping business to Africa and the Middle East is strong.” In addition, companies are reducing the number of flights to increase the loading rate, and the freight rate is rising. DHL Global Forwarding, a unit of German international logistics company DPDHL, said companies were announcing price increases as fewer voyages and increased ship utilisation. DHL noted that routes to South America also appeared to have been affected by “increase inventory after summer vacation brings bullish market quotations”.
Container ship traffic, including on major routes, has declined sharply since the second half of 2022, and companies have been trying to match supply with demand through measures such as reducing voyages. In the case of Shanghai shipments to the United States, for example, due to the announcement of price increases in the case of supply constraints caused by fewer voyages, freight rates rebounded after April. There are only a limited number of shipping companies on secondary routes, which carry less traffic than major routes, and the effects of reducing voyages and raising prices are easy to see.
Another container shipping company said that “it is possible that the impact of dealing with environmental regulations is being felt”. Starting in 2023, the International Maritime Organization (IMO) has introduced an Operational Carbon Intensity Index (CII) rating scheme. Since each ship is evaluated based on its annual carbon dioxide emissions, a reduced-speed operation that effectively reduces fuel consumption is an effective measure.
Container ships generally make regular voyages with stops once a week, and in order to maintain the sailing schedule in the face of increased transportation days due to reduced speed, the number of vessels sailing needs to be increased.
A container shipping company said, “Even if the situation of deceleration increases, in the main routes from Asia to Europe and the United States, the supply of position has not decreased as expected. There seems to be a trend to divert ships from the South American and African routes to the main routes.”
The main routes to Europe and the United States are jointly operated by a number of container shipping companies. On the other hand, it is said that in the secondary routes, there are also many cases of separate operations, and container shipping lines believe that “it is possible to prioritize the schedule of maintaining the main routes operated as alliances and fail to fully meet the increased demand of the secondary routes.”
The freight market recovery of the main routes is slow, and the freight rate is still not able to see a full rebound. However, there are also views that if the reduced speed of operation leads to a long-term shortage of positions, sooner or later, it will have an impact on major routes, which may lead to freight increases on all routes.