Tight Capacity, A Shortage of Empty Containers! Freight rates are expected to reach their peak in the next four weeks.

In the midst of the turbulent situation in the Red Sea region and the ripple effects of issues such as vessel rerouting, delays, and cancellations, the shipping industry is beginning to feel the impact of tight capacity and container shortages.

According to a report from the Baltic Exchange in January, the 'closure' of the Red Sea-Suez route has altered the fundamental outlook of container shipping in 2024, leading to a short-term tightening of capacity in the Asian region.

Vespucci Maritime's CEO, Lars Jensen, pointed out in the report that as of mid-December 2023, the baseline outlook for 2024 indicated a cyclical downturn, with freight rates expected to bottom out in the late first quarter or early second quarter of 2024. However, Jensen stated, "The 'closure' of the Suez route fundamentally alters this baseline outlook."

Due to the threat of attacks by Houthi forces in the Red Sea (Suez Canal entrance), many operators are forced to detour around the Cape of Good Hope. This change will impact operational networks from Asia to Europe and partially from Asia to the U.S. East Coast, absorbing 5% to 6% of global capacity. Considering the accumulated surplus capacity in the market, this should be manageable.

Jensen continued, "It is evident that transportation times in the supply chain will be extended, with at least 7 to 8 days needed from Asia to Northern Europe and at least 10 to 12 days from Asia to the Mediterranean. This results in freight rates significantly higher than pre-crisis levels, allowing shipping companies to return to profitability. However, rates are expected to peak in the next four weeks and then settle at a new stable level."

Shortage of Empty Containers Resurfaces

The familiar scenario of slow repositioning of empty containers, commonly observed during the pandemic, is set to reoccur.

Currently, there is an approximately 780,000 TEU (Twenty-Foot Equivalent Unit) gap in the availability of empty containers arriving in Asia before the Lunar New Year, compared to usual conditions. This shortage is a major contributing factor to the surge in spot freight rates.

A global development director at an overseas freight forwarding company stated that, despite earlier predictions in the past weeks, the shortage may catch the entire industry off guard. Initially, many dismissed the news, perceiving it as a minor issue that might not be as severe as operators claimed. However, the director cautioned that, even though their company is a relatively small player focusing on the Asia-Europe and Mediterranean routes, they are now experiencing the pain of container scarcity.

"Obtaining 40-foot high-cube and 20-foot standard containers is increasingly difficult at major ports in China," he explained. "While we're expediting empty container repositioning and received the last batch of leased containers, no new empty containers are available as of today. Leasing companies' entrances have 'out of stock' signs."

Another freight forwarder shares concerns, foreseeing potential turbulence on Asia-Europe routes in 2024. Red Sea crisis worsened structural inefficiencies in empty container repositioning.

Export container issues are emerging at North China feeder ports, possibly indicating an impending shortage. They warn,"Someone has to bear the cost of higher expenses."