Container freight rates to Europe spike to 15-month high as Red Sea attacks continue

Major liner companies have maintained their push on European container freight rates amid ongoing attacks on shipping through the Bab al-Mandab Strait by Yemen-based Houthi rebels, lifting rates to 15-month highs.

Diversions away from the Suez Canal to the Cape of Good Hope route are causing constricted container supply due to additional lead times, blank sailings and potential port congestion. Together with an uptake in demand ahead of the Chinese New Year holidays next month, this is driving increasingly bullish market sentiment in the near term, according to market sources.

Platts Container Rate 1 - PCR 1 - North Asia - North Europe Westbound spot cargoes were assessed at $6,000/FEU on Jan. 9, a 20% increase on the day and the highest since Sept. 22, 2022.

Similarly, Platts Container Rate 3 - PCR 3 - cargoes to the Mediterranean from North Asia were assessed at $7,000/FEU, a rate level last seen in September 2022.

"Currently vessels in January are pretty full, it is difficult to get space on a vessel without paying for a premium service," a logistics source said. "That said, customers are making bookings and some clients will pay what it takes to get cargo away before the Chinese New Year."

Carriers are setting vessel allocation expectations, which is limited to what was agreed on the basis of long-term contracts, although one carrier decided to not honor its long-term agreements for 2024 due to the current market conditions, another logistics source said.

"They have cancelled all contracts and pushed customers to the FAK spot market, which is considerably higher that the pre-agreed rates," the source said.

The weekly services from carriers have been affected, with the Mediterranean in particular under the spotlight. For example, Hapag-Lloyd has announced various vessel changes in recent weeks and CMA CGM has merged some services, such as its TMX 3 and ADRINAF routes covering Turkey, the Adriatic, Malta and Libya.

Supply chain challenges

Despite the fluidity seen from carriers to amend services, equipment shortages in the form of empty containers are expected in Asia as vessels are scheduled for longer transits on their regular loops due to rerouting around the Cape of Good Hope.

According to data from S&P Global Commodities at Sea, the alternative route has increased westbound transit times for Asia-North Europe shipments by 30% and for Asia-West Mediterranean by 60%. As a result of increased fuel consumption and higher bunkering overheads, carriers have been raising charges.

"Some carriers are better at managing containers than others, the lead time in getting back to Asia will be an issue as will berthing congestion, the supply chain shortages will cause some pinching to shippers," a forwarder said.

Disruptions in supply chain logistics can therefore be expected and will cause shortages in origin that will impact services.

Bullish carrier behavior is set to continue in the near term, with the container market expected to continue being impacted by the conflict in the Middle East.

"The current rate levels will hold for a while yet. My suspicion is the ripple effect will last up until the end of Q2 when the traditional peak season kicks in," a forwarder source said.