Coping with blocked Suez Canal: An issue we have dealt with before, though this time with containers
 In response to the escalating Red Sea crisis, leading online container logistics platform Container xChange has issued a comprehensive report detailing the far-reaching effects on container trading and leasing rates worldwide.
The report explores the intricate dynamics of the crisis, shedding light on the unprecedented surge in container prices and leasing rates, as well as the ripple effect on global trade routes.
As container vessels take longer routes, capacity constraints contribute to a revival in container rates. The China-Europe trade lane has witnessed significant surges, with trading spot rates soaring in key Chinese ports. The disruptions are not confined to China; leasing rates bound for Hamburg, Germany, have doubled since January 1.
Of course, it is good to remember that being forced to take the Cape route was a working reality for international shipping from 1967 till 1976. The cause then was the 1967 Six-Day War to be later extended in the Yom Kippur War of 1973. That brought on the super tanker, the largest of which and recently scrapped weighed in at more than 500,000 tons. So what was done once can be done again.
Of course, today's mega ships carry containers not oil. Today's laden tankers linger hopefully at anchor awaiting a destination where the grade of oil they carry can be sold in an increasingly fussy market that will take this and not that. In what is becoming a radically different state of affairs, amid rising geo-political tensions rising all over the world. Perhaps lessons can be learned from the North American experience after the Panama Canal more than doubled its capacity, and Asia-Pacific cargo was delivered to the US east and Gulf ports far closer to the point of where it as sold to retail consumers.
Perhaps something of the same lesson can be learned today, recalling how American retailers absorbed 10 to 15 years ago. That was to embrace the "Four Corners" concept, involving stationing mega warehouses at the four corners of the continent, which means having a lot more inventory on hand than ever before.
When less cargo was being landed at west coast ports and more heading east to consumer-rich lands east of the Mississippi, more inventory was in transit for longer, which went against imposing a just-in-time strategy on a massive scale. Such lessons should now be absorbed by European retailers.
To provide context on the current state of average container prices in Shanghai, in comparison to the peak demand period during Covid, container prices rocketed to historic highs in 2021 due to the pent-up demand post Covid, reaching a peak of US$6,171 in the last week of September 2021, and falling since then until December 2023. However, container prices have experienced a significant increase since the beginning of January 2024.
As container vessels take longer routes, capacity constraints contribute to a revival in container rates. The China-to-Europe trade lane has witnessed significant surges, with trading spot rates soaring in key Chinese ports. The disruptions are not confined to China; leasing rates bound for Hamburg have doubled since January 1.
Weekly China-Europe Trading spot rates continued to shoot up: Trading spot rates for an FEU high cube cargo - worthy containers have witnessed a significant surge in key Chinese ports. Noticeable week-on-week increases have been recorded in Xiamen (23 per cent), Shekou (19 per cent), Guangzhou (10 per cent), Huangpu (8 per cent), and Nansha (8 per cent). These disruptions are not confined to China; leasing rates bound for Hamburg have doubled since January.
“Since the beginning of the Houthi situation, the trading prices for FEUs in China significantly increased because there was a tightness around equipment availability in Chinese main ports ahead of Chinese New Year because the loop around Africa soaks up capacity and delays the return of empty equipment to China,” said Container xChange CEO Christian Roeloffs.
The longer disruptions at the Red Sea trade route pose a significant threat to various industries, including automobiles, electronics, chemicals, consumer goods, machinery, and pharmaceuticals. Delays in the supply chain could lead to production interruptions, impacting global value chains.
“Effectively navigating this critical period requires enhanced predictive analysis, meticulous demand forecasting, and increased collaboration within the industry,” Mr Roeloffs said.
“By employing advanced planning techniques and maintaining agility in response to evolving situations, the manufacturing sector can not only overcome immediate challenges but also strategically position itself for long-term success. Adapting to the new normal will involve holding increased inventory, accounting for extended transit times, and acknowledging higher container rates as integral components of the evolving landscape.”
The impact extends beyond individual industries to the broader economy, emphasizing the vulnerability of just-in-time manufacturing processes to disruptions. Businesses across sectors will need to closely monitor and adapt to evolving circumstances to ensure the continued flow of goods through alternative routes if necessary.
A remarkably positive outlook on container price development: In January, the Container Price Sentiment Index (xCPSI), a proprietary container price sentiment tool by Container xChange, consistently maintained historically elevated levels, reflecting a widespread belief that container prices would continue to soar due to the ongoing Red Sea crisis. The industry anticipates sustained high prices, highlighting the profound impact of the crisis on global trade.
The industry’s expectation for container prices to remain exceptionally high in the foreseeable future urges businesses to stay agile and vigilant in their planning amid evolving global trade dynamics.
The Container Price Sentiment Index (xCPSI) serves as a valuable metric for assessing the prevailing market sentiments among supply chain professionals on the anticipated trajectory of container prices in the upcoming weeks.
Container xChange serves as a global online platform facilitating container leasing and trading, connecting container users with owners. The platform streamlines the process of finding and exchanging containers, optimizing fleet management, and fostering collaboration across the shipping industry. |
