In recent months the spot rate market has seen a significant increase. Drewry, a leading advisory firm, has provided insights into how this change occurred and how businesses should react in its latest market updates.
Red Sea diversions and slower port
According Drewry, disruptions to key shipping lanes in the Red Sea have caused significant delays. This has caused congestion in alternative ports, which has further exacerbated delays and increased costs.
In addition, slow port operations due labour shortages and infrastructure issues have compounded this issue, leading to a smaller supply of available shipping capacities and skyrocketing rates.
What’s driving spot rates to surge?
Philip Damas has identified four factors that have caused a sudden increase in rates.
First, Damas claims that the congestion at major ports caused by increased cargo volumes, labour disputes and other factors has reduced the efficiency of shipping operations globally. Ports in Asia such as Singapore and Colombo have seen significant year-to date increases in throughput. This has contributed to longer wait times, and higher costs.
Supply chain disruptions such as diversions to the Red Sea, and slower port operations have also led to rerouted ships and alternative port congestion. This has led to a reduction in shipping capacity, and increased rates.
The market is also volatile due to the uncertainty of geopolitical events such as potential conflicts and their resolutions. Spot rates have been affected as companies rush to secure their shipping capacity.
Damas concludes that despite the new shipping routes, the constant disruptions and blanked sails indicate a market that is still struggling to balance supply and demand. This has led to planned rate increases in order to manage the constrained capacities effectively.
Looking forward
Will this trend continue? Speaking on the latest podcast of the Freight Loop, Damas stated that rates between Asia and Europe would begin to reverse. Trans-Pacific rates will also stabilise or be softened.
“While weather conditions will not always be so bad we expect lead times to remain long as we agree with Maersk that the Suez Canal won’t return to full use before the end this year. If demand continues to exceed expectations, pressure on liner network and container availability may remain high. We forecast that, despite these caveats and the current spot rate rally along the Asia Europe route, the trend will reverse in June. The Trans Pacific market is expected to stabilize or soften by the second half 2024 due to the record amount of additional capacity.
DHL: Strategic approaches can strengthen supply chains amid rising spot prices
Many companies will naturally consider what steps they can take to reduce the impact of rising logistics costs.
DHL’s latest trend report, ” supply chain diversification,” suggests strategies companies can use to strengthen their supply chains in the face of rising spot rates.
In its report, DHL stresses the importance of multisourcing, multi-shoring and diverse transportation modes.
Multi-shoring is a way to reduce risk, and for those who are unfamiliar with these first two factors, it involves diversifying the manufacturing and supplier locations in different regions or countries. This includes duplicating manufacturing capability and using the same supplier at multiple locations. Multi-sourcing expands the network by incorporating redundant suppliers and manufacturing capabilities, addressing financial risks and operational risks.
DHL says that adding logistics functions such as hubs, distribution centres and warehouses can help improve operations.
DHL claims that by pursuing these strategies business can reduce risks associated with geopolitical crisis, natural disasters and market fluctuations. DHL argues that shippers can maintain continuity and better manage disruptions by diversifying their supply chains.
DHL encourages business to stay informed of market trends and conditions at ports, which can assist in making timely, informed decisions.