Containerised shipping freight rates are surging back to the heightened levels previously only seen during the Covid-19 pandemic, and thanks to a combination of low supply, international geopolitical instability, high demand for services and recent local controversy surrounding the industry, they likely will not come down again in the foreseeable future.
A severe capacity crunch has led to a ‘code red’ reading by Scan Global Logistics on nine of the 10 major routes leaving Asia, with only the Intra-Asia route seen as operating with open capacity.
Capacity is severely constrained everywhere else through Asia and, as a result, freight rates continue to rise across the globe.
As these rates continue to rise and careen towards those pre-Covid highs, relief is still beyond the near horizon.
RMIT professor of logistics and supply chain management and founder of the Australian Maritime Logistics Research Network (AMLRN) Vinh Thai says a spate of past, present and continuing uncertainty means instability will continue to curtail the industry and inflate freight rate prices.
“I think the major factor still is the geopolitical instability in the Middle East, especially in the Red Sea region,” Thai tells ATN.
“I see a connection between the existing Russia/Ukraine war and the political instability in the Middle Eastern region. The Russia/Ukraine war is still ongoing without any signs of ceasefire or stability, and any stability in the Middle Eastern region, in my opinion and from my perspective, can often be temporary.
“It is very difficult to see whether or not this situation will resolve permanently or any time soon, but we’ll still see some instability from now until the end of the year, for sure.”
The recent ship attack Thai is referring to is the launch of two cruise missiles by Yemen’s Houthi rebels that struck a bulk cargo carrier off the Gulf of Aden in Yemen’s south, close to the opening of the Red Sea.
Ukrainian-owned, Palau-flagged, Polish-operated ship M/V Verbena caught fire and a civilian mariner was severely injured in the attack, which is not the first of its nature in the region in recent months.
The 139m long vessel was travelling from Malaysia to Singapore carrying wood and has since been abandoned and the crew evacuated.
Over 50 attacks have been launched by Houthi rebels on ships in the region since the commencement of the current conflict between Israel and Palestine, and they have stated the attacks have been launched in support of Palestine with the aim of ending the conflict.
That risk of attack has seen ships elect to take longer, safer routes – like that of around South Africa’s Cape of Good Hope – however those longer routes, according to Thai, are contributing to extensive container backlogs.
The Red Sea passage through the Beb El-Mandeb Straight and Suez Canal is a critical route for 30 per cent of the world’s container traffic, but these consistent attacks in the region have seen a dramatic drop in ships utilising the corridor.
Navigation around the Cape of Good Hope has dramatically increased in recent months as ships are electing to travel a longer, safer route. Shipping giant Maersk says the altered route adds 4000 miles to the voyage length which has incurred a 40 per cent increase in fuel costs.
Maersk also estimates there has been a 15-20 per cent reduction in industry-wide capacity this quarter.
According to Thai, this increased transit time and decreased ship and container availability is only exacerbating current issues in the industry.
“The media has reported a lot of incidents and on Sunday we saw an attack on a Ukrainian ship that caused a fire. Because of that shipping lines have, in a way, been forced to deviate from their usual routes from Asia to Europe and vice-versa,” Thai says.
“Liner shipping operates just like buses. If you take a public bus, we know they operate according to a timetable. They’ll be at one stop at one time, and the next stop at a particular time, and so on and so forth. For container ships, they operate following that model. When a particular bus, for example, arrives at the next stop late, then we can imagine there will be lots of passengers waiting and there is a congestion.
“The same thing has happened here in container shipping. When ships take longer to arrive at the next port of call there will be a backlog of cargo – especially export cargo – at that particular port. This is happening in major Asian ports like Singapore, and when there is congestion and constraints like lacking vessels, it makes the problems more severe.
“When you go back to supply and demand you can see the pressure increasing on the demand side, but the supply side is lacking, therefore putting up the container freight rate.”
For the pinch being felt across the globe because of this deviation from the traditional Red Sea route, the Australian freight industry itself has not been without its own difficulties in recent months.
Logistics giant DP World was on the receiving end of a cyberattack in late 2023, and a reported 30,000 containers of goods were left stranded for days as the company elected to pull its connection to the internet to prevent further theft of data.
DP World handles approximately 40 per cents of goods entering and leaving Australia, and the results of the hack saw a backlog that filled almost the entire stevedore’s storage space.
The 31,137-container backlog was cleared within 10 days of first detection of the hack, according to DP World, but Thai believes there are still lingering doubts from the hack.
“In Australia, if you remember earlier this year there was a cyber-attack in four container terminals operated by DP World,” he says.
“The problem is already resolved, but because of that there has been some backlog in containers in those terminals as well, and not to mention another factor in the Australian context is what happened in those terminals.
“When you put everything into the picture you can see the impact – which in this case is the container freight rate – on the Australian ships is quite significant.”
With the holistic issues that are currently impacting the maritime freight industry, freight rate relief still looks some way away.
In its simplest form, though, many of the issues come down to the basic principle of supply and demand. A litany of factors means demand for containers and ships is through the roof and the context of the current global climate means supply is, unfortunately, low.
“Compared to the 2022 level, the freight rate for containerised cargo has been increased, on average more than 30 per cent on all major routes, and for Australia to North Asia especially – to Shanghai, for example, it has been more than 20 per cent,” Thai says.
“That’s a phenomenon we’ve been seeing and according to lots of sources we are not going to see the container freight rate rise going down any time soon, until towards the end of this year. We know this phenomenon and when we do a simple analysis on this there are several possible reasons why the freight rate is going up again.
“Start with the logic of supply and demand – in a normal economic situation the price of a product or a service is the result of the supply and demand in relation to that product or service. In the case of containerised freight rate, that’s the supply of container shipping, and the demand for container shipping.
“The supply for container shipping comes from two main sources, the availability of container ships and the availability of containers themselves, and demand is whether there is the demand to carry lots of cargo.
“In a simple equation, the container freight rate is determined by those two forces.
“Moving into 2025, I know several major shipping companies have their ship orders to be delivered soon, so that could help a little bit.
“I personally do not see the matters resolving or the problems easing before the end of the year.”