Asia-Europe Container Trade Surging as Forwarders Warn of Capacity Crisis and Soaring Freight Rates

Forwarders are warning customers that demand on Asia-Europe ocean trades is beginning to look a lot like the pandemic peak.

&ldquo It&rsquo s shocking&rdquo said one UK forwarder. &ldquo The speed and pace of change is phenomenal, replicating the lead-up to the peak of the pandemic.&rdquo

The forwarder warned that box lines were jettisoning FAK rate quotes when bookings are made, and contract capacity is being cut.

&ldquo It&rsquo s a nightmare. Demand is hugely high &ndash we are seeing between 10-20 % growth across our customer base year on year. Either customers are restocking, or with the longer transits around the Cape, needing an additional two-week buffer of stock in transit.

&ldquo Add to that the start of the traditional &lsquo peak season&rsquo in May, which is now &lsquo seasonalising&rsquo to the pre-pandemic model. All in all, it&rsquo s a nightmare scenario for importers at this time.&rdquo

Scan Global Logistics also warned customers that Asia westbound ocean freight levels were &ldquo surging&rdquo .

&ldquo A cocktail of continued sustained capacity demand, blank sailing programmes and a full-year outlook that offers no positive outlook on the crisis in the Red Sea has sent ocean freight rates on a rapid upward trajectory,&rdquo it said.

Scan told customers that there were &ldquo black clouds all over the horizon &ndash unless you are a container carrier&rdquo .

Container lines are busy implementing peak season surcharges and GRIs &ldquo on both long- and short-term contracts,&rdquo said Scan.

Hapag-Lloyd,  MSC  and  CMA CGM  have all announced increased ocean freight tariffs between the Far East and Europe, two from mid-May.

But the UK forwarder revealed: &ldquo Carriers are putting rates out &ndash and then withdrawing them because they have already been replaced with higher levels.

&ldquo FAK and spot facilities and mechanisms for most shipping lines are now closed until June, or later &ndash so you can&rsquo t make a booking even if you are willing to pay higher prices.&rdquo

He added that unrelated lanes were now being affected too: &ldquo For instance, the Asia-LatAm rates are now $9,000-$10,000 per 40ft, and capacity is being diverted to that more profitable route.&rdquo

Rate levels in contract and spot are also starting to diverge.

Scan Global said: &ldquo This being reminiscent of rate development during Covid, we have a situation where long-term contracted rate levels and short-term rate levels are far apart.

&ldquo In some instances, short- and long-term rates can vary by more than $3,000 per 40ft DC on the same trade. As an added comment, carriers are increasingly opting to prioritise and load higher revenue cargo in an attempt, to mitigate bleak financial results posted in Q4 23 and, to a certain extent, mediocre results in Q1 24.&rdquo

Part of the problem also lies with a shortage of containers.  A Container Xchange customer said yesterday that, despite depots not facing significant pressure from inventory levels, container prices were &ldquo continuously climbing, adjusting roughly every 48 hours&rdquo .

&ldquo This increase largely stems from uncertainty related to the Red Sea situation, as well as suppliers and sellers looking to hedge their risks. We&rsquo ve seen prices for a 40ft (cargo worthy) container jump from $2,200-$2,300 in April to $2,500-$2,700 currently.&rdquo

It added that the diversions around the Cape of Good hope had likely absorbed &ldquo a significant number&rdquo of boxes, while others were &ldquo stranded in network locations&rdquo .

&ldquo Shipping these containers out may not be economically feasible, due to factors such as high transportation costs, inexpensive storage at the location, or the containers nearing the end of their operational life.&rdquo

Scan Global asked for &ldquo understanding&rdquo from customers, and said it expected the situation to continue through May.

The UK forwarder added: &ldquo This is affecting the whole of the Far East inbound. The new tonnage is not making a dent, or being deployed as repositioning resource for containers &ndash so that&rsquo s not assisting.

&ldquo This is just the start, or near start, of an explosion in capacity shortages and ocean  heading further north at a quicker rate &ndash even pay-to-play may not be able to save the day on this occasion.&rdquo

But he said demand would likely sink as fast as it grew.

&ldquo After the October Chinese Golden Week, the market will fall quicker than it climbed, I suspect.&rdquo