In April’s Logistics Executive Briefing, Drewry flagged the issue of “extreme freight rates” and predicted that spot rates would continue to increase. Three months on, spot rates have jumped by another 70% or so and we expect rates to get close to $20,000 on some lanes.

The difference between this year’s container shipping market and that of the last 5 years has become stark, as spot rates broke inflationary record after inflationary record.

Average Asia-US West Coast port-to-port spot rates topped $4,000 per 40ft container back in September 2020, slowly rose past $5,000 in May 2021 and then rapidly sailed past $6,000 (June), $8,000 (also June) and $9,000 (July). We have heard reports of $15,000 from China to the West Coast and are aware that carriers are charging additional premiums on top to prioritise the loading of a late booking ahead of normal FAK rate cargoes.

Similarly, Asia-Europe spot rates have broken multiple price records. Average Asia-North Europe port-to-port spot prices per 40ft container are now commonly 5-number rates (see below).

Drewry continues to track the various stages of the market shock, which commenced in about June 2020 in the Transpacific eastbound trade and was followed by an even faster surge in Asia-Europe rates from about December 2020.

In April, Drewry introduced the concept of “extreme freight rates” – rates which are at least 50% higher than the 5-year historical average, provided they last for at least 3 months (so as not to confuse them with peak-season freight or one-off rates).

As of July, we are seeing extreme freight rates not only on the Transpacific eastbound and Asia-to-Europe westbound routes, but on all headhaul and backhaul Transpacific, Asia-Europe and Transatlantic routes (see table below).

The premiums over the 5-year historical average range from 84% for Rotterdam to Shanghai to 391% for Shanghai to Rotterdam.

The premium over the 5-year average reaches $7,000-10,000 per 40ft container on the major routes from Asia. For low-value products, this unexpected premium cannot be absorbed by shippers and we know from Drewry shipper customers that some export business is being lost due to these extreme transport costs. (The situation varies by product type and value, as the ratio of freight costs to product value is not the same for different products.)

But what if ocean carriers decided that they will allocate scarce ship capacity and empty containers to specific trades only if spot rates are at least 300% higher than the historical average? If they did this, then the Transatlantic routes (both directions), the Transpacific westbound route and the Europe-to-Asia route would have to see further rate increases on top of already extreme rates, as follows:

Potential further spot rate increases to “equalise” carrier rates:

• Transpacific westbound: $700/40ft container
• Transatlantic westbound: $3,600/40ft container
• Transatlantic eastbound: $1,100/40ft container
• Europe-to-Asia: $2,000/40ft container

A number of worried shippers have reached out to Drewry to ask for forecasts of spot freight rates and contract freight rates by major trade lane in 2022. These have been available to Drewry Benchmarking Club customers for years. With the forthcoming peak season on the Asian routes, Drewry expects spot rates and underlying capacity shortages to become even more acute.

Macro numbers on average industry freight rates, supply and demand are also available from Drewry’s Container Forecaster. Our central forecast for 2022 is that rates will be substantially higher than 2019 – there will be a softening of extreme spot rates, but no return to “normal” freight rates overall.
Source: Drewry