Container Shortage Drives Ocean Freight Rates Skyward
A perfect storm in global trade is creating a shipping container capacity crunch, fueling a sudden and surprise spike in ocean freight rates.
The beginning of peak shipping season, coupled with the longer transits to avoid the Red Sea, and bad weather in Asia, have hit the flow of trade on key routes. Ocean carriers are skipping ports or decreasing their time at port, and not picking up empty containers, in an effort to keep vessels on track for delivery.
The supply chain cost issues come at a time when consumer goods for back to school and the holidays are set to be moved on the water.
“From the Far East into the U.S. West Coast, it is likely spot rates will surpass the level seen at the height of the Red Sea crisis earlier this year, which demonstrates how dramatic the recent increases have been,” said Emily Stausbøll, senior shipping analyst at Xeneta.
Xeneta ocean freight rates show the rallying spot market and the widening spread between spot and long-term rates. “The bigger the spread between long and short term rates, the greater the risk of cargo being rolled, which we know is already happening,” she said.
Spot rates had fallen after the sharp rise triggered by Red Sea tensions in early 2024, but since the end of April they began spiking by as much as $1,500, on average, on routes to the U.S. coasts, and now some of the highest contract rates charged by shippers are over double the rates of just a month ago.
Stausbøll said this will bring back memories of the chaos caused by lack of available capacity during the Covid-19 pandemic. “Similarly to back then, some freight forwarders are now being pushed to premium rates to secure space guarantees,” she said.
Early Xeneta data suggests rates will increase further at the start of June.
DHL has been warning about a container crunch since January because of the longer routes needed to avoid the Red Sea since the Houthi attacks began. Containers are out on the water longer and as a result not available to be reloaded. The availability of containers has been slowed even further by the bad weather impacting port operations in China, Malaysia, and Singapore.
Fear of new post-pandemic supply-chain cost record: This latest round of soaring ocean freight rates comes after a previous high earlier in the year during which an “elevator floor” characterized by Levine of $3,000-$5,000 a container was set. At that time, prices were double when compared to a year ago.
Logistics price increases are ultimately passed onto the consumer and the dizzying freight rates during the pandemic were among factors cited by the Federal Reserve as a cause of inflation. In a series of customer alerts, logistics providers are warning shippers around the world, such as major retailers, of the container shortage.
“Carriers are facing serious equipment shortage nowadays due to the long-term congestion, blank sailings, demand increase caused by South America tariff implementation and so on,” warned Orient Star Group in a note to clients. “Plenty of shipments are delayed by equipment shortage which lead to heavy backlogs, and as a result, space shall get much tighter in the market. We’re trying our best to encourage the shippers to arrange empty container pick ups as early as possible to occupy the resource well in advance.”
A new round of general rate increases on June 1 has Orient Star Group characterizing the additional $1,000 charge as carriers getting a bit “greedy” under the sudden increased demand.
MSC, the world’s largest ocean freight company, announced new rates of $8,000 to $10,000 for 40-foot containers to the U.S. West Coast.
“Regardless of what headlines about the economy might say, consumers are shopping and retailers are making sure they have merchandise on hand to meet demand,” said Jonathan Gold, vice president for supply chain and customs policy at NRF.
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