C.H. Ali Ashraf of Robinson, the director of North American Ocean Services, and Greg Scott of LCL, the global director, offer their insights into current ocean spot rates, as rates continue to increase despite disruption. Shippers can expect volatility to continue.
This is a summary of the market and what shippers should know to navigate it effectively
Shippers were right to expect that this year would be a buyers’ market for ocean freight after carriers increased capacity last year, and were expected to do so again in 2024. A combination of global events and high trade lanes demand has driven ocean freight rates up and capacity down in Q2 2024.
Shippers are particularly challenged because they were unable to secure enough space for long-term contracts when ocean carriers set strict deadlines and/or limited allocations to finalize deals in early May. Now they are wondering how to move their goods on schedule without breaking the bank.
If they have cargo in Asia and it needs to be moved now, ocean rates or air rates will be higher. Shippers can still manage costs and create flexibility with their shipping strategy for shipments which do not need to be moved immediately.
Rough waters
The frenetic race to the finish that we saw in contract season is still going on this year, amid a lot turbulence.
In the second half April and into mid-May the demand for space on Asia to U.S. ocean ships started to increase at a moment when some carriers used blank sailings to reduce capacity as a response to the lower demand after the Chinese New year. The market was also surprised by the increase in demand for other trade lanes such as exports to Europe and Latin America from Asia.
The additional capacity introduced to the market in the first half of the year and last year was not enough to cover the rerouting of Cape of Good Hope. The carriers have looked to the charter market for the additional capacity required. We are now seeing new strings and additional loaders being added to the U.S. West Coast.
As of today, there is no additional capacity heading to the U.S. East Coast and Gulf Coast in terms of new string or even extra loaders. Due to the Cape of Good Hope reroutings, some carriers that planned to add new capacity to these lanes moved their vessels to the Asia-Europe trade lanes as more assets were needed there and congestion was affecting that lane at an increased rate.
Due to the current market conditions, spot rates continued to rise last month. In May, rates from China to North Europe tripled, while rates to the U.S. East Coast doubled. Rates have continued to rise this month and carriers now offer premium services to secure space to priority cargo.
The ongoing threat of attacks against vessels in the Red Sea is a major factor driving rates up. This forces carriers to reroute shipments off course. Container shortages, port congestion and an increase in container exports to the U.S. are all factors that have converged.
What shippers can Do
The current market volatility is not going to disappear anytime soon. They’ll have to play the spot markets strategically.
Shippers should not limit their cargo to a single carrier, as capacity is tight and rates are rising. Shippers shouldn’t limit their shipments to one port, either, given the congestion and possible strikes that are affecting some regions. Shippers should diversify their options in order to have more flexibility with regard to the carriers, ports, and capacity that they can use.
A NVO with relationships with the major ocean carrier alliances will give shippers access more carriers, capacity and sailing schedules. We work with shippers to reroute their cargo when the market is difficult.
Savings will be important as shippers struggle to compete with rising ocean freight rates. Shippers can save money by using LCL shipping, which only charges them for the space they use. LCL is useful in today’s market to keep freight moving. We’re helping customers move some of their full-container-load (FCL ) shipments to LCL in order to keep inventory at a manageable amount while FCL capacity is tight.
If shippers exhaust all options on the spot ocean market, they can work together with a partner transportation company to convert shipments into air or expedited LCL service. Both options are more expensive than standard ocean services but can help shippers deliver their critical shipments on schedule.
Answer with agility
There is no single solution that will prevent ocean rates from rising. They can reduce the risk of higher ocean rates and maintain timely delivery by diversifying their options and being flexible during this fluctuating peak period.