What the Freight? Examining Current Freight Rate Trends

When it comes to freight rates, the international shipping industry has always been a volatile ride. Imagine going up and down the waves of choppy waters in a small boat. Freight rates tend to rise and fall in a similar fashion on waves of greatly varying height, width, and separation in the international shipping market. Many factors can create waves in the market…

The pandemic brought a wave of unprecedented size. One might even call it a tsunami. Largely spurred by lockdowns and stimuli checks, a shipping boom larger than the ports could handle pushed freight rates up and up and up. Of course, the unnatural nature of the boom followed by struggling economy and high inflation finally brought the back half of the wave where freight rates came falling back to sea level. But other events created new waves…

Russian-Ukraine war, wave; Panama Canal drought, wave… and the waves are of various size and impact… attacks in the Red Sea and Gulf of Aiden stopping use of the Suez Canal, big wave; Francis Scott Key Bridge collapse by the Port of Baltimore, small wave…

Those are just some of the splashier events that have affected ocean freight rates. Ultimately, what does it all add up to? What’s happening with freight rates now?

Let’s find out by embarking on a voyage through the tumultuous seas of ocean freight rate indices. These indices can serve as compasses for global trade, guiding shippers, carriers, and economists alike through freight rate trends, helping them to plan for the future.

Each major ocean freight index out there is a little different from the others in how it gathers and aggregates its data. Some may use only the base rates of shipping a container over a shipping route while others may factor in varying amounts of additional fees and costs involved. While this gives different numbers to each index, the rising and falling trends tend to be similar between the indices.

While examining freight rates trends today, we’ll focus mainly on two sources: the Drewry World Container Index (WCI) and the Statista Global Container Freight Rate Index. However, I also looked at other indices, including those from Freightos and Xeneta.

Drewry World Container Index (WCI)

The Drewry WCI is a composite index that tracks 40-foot ocean container freight rates on eight major routes connecting the US, Europe, and Asia. It’s assessed by Drewry Maritime Research and primarily serves as a benchmark for spot rates across these crucial trade lanes.

Broad Numbers from Drewry WCI

The Drewry WCI revealed a couple interesting things when looking at it from a broad lens:

• As of the latest update, the composite index stands at $2,836 per 40-foot container—a 3% decrease from the week before but about 100% higher than the average pre-pandemic rates of 2019 (which hovered around $1,420).
• However, when compared with the same week last year, it has surged by 66%. That means freight rates had returned much of the way to pre-pandemic rates by this time last year.
• The increase of the year-to-date average is rather remarkable at $3,372 per 40-foot container. This surpasses the 10-year average rate of $2,706 (which was inflated by the exceptional 2020-22 Covid shipping boom period). The attacks in the Red Sea and Gulf of Aiden are the biggest factor in the resurgence of freight rates this year.

Route-Specific Insights

Let’s look at specific routes:

• Shanghai to Rotterdam, Shanghai to Los Angeles, and Shanghai to New York: Rates dropped by 3% to $3,078, $3,704, and $4,894 per 40ft box, respectively.
• Rotterdam to Shanghai and New York to Rotterdam: Rates declined by 2% to $794 and $622 per feu, respectively.
• Rotterdam to New York: Rates fell by 1% or $17 to $2,244 per 40ft box.
• Los Angeles to Shanghai: Rates remained stable at the previous week’s level.

Spot Freight Rate Expectations:

Drewry anticipates a minor decrease in spot freight rates in the coming week.

Statista Global Container Freight Rate Index

This index provides a broader perspective on container freight rates. Here’s a glimpse:

• From January 12, 2023 to March 14, 2024, the global container freight rate index fluctuated in U.S. dollars per 40-foot container.
• While the exact value varies over time, it reflects the ebb and flow of supply, demand, and market dynamics.

The container freight rates have been on a rollercoaster ride, influenced by a myriad of factors. Here’s a closer look:

1. Low Point in October 2023:
   • On the 26th of October 2023, the global freight rate plummeted to a mere $1,342 per 40-foot container. This was the lowest level recorded since before the pandemic policies-caused shipping boom.
2. Resurgent Rates:
   • In February 2024, freight rates reached a high of over $3,900 per 40-foot container—a staggering increase of almost 300% from a few months earlier and around a 100% increase compared to pre-pandemic rates in 2019.
   • This surge was driven by a number of supply chain disruptions, but chief among them were the Iran-backed, anti-Israel (and her allies) Houthi attacks on ships in the Red Sea and Gulf of Aiden.
3. March 2024 Dip:
   • In March 2024, the freight rate began to decreased from the February peak.
   • However, rates remain significantly elevated compared to historical averages.

Air Cargo and Ocean Freight Interplay

• Disruptions in ocean freight, driven by events like the Red Sea crisis, continue to impact global trade. Some volumes are shifting from sea to air. For example, out of India to the U.S., air demand increased, though that demand is easing somewhat.
• Freightos Air Index rates out of South Asia have been climbing, especially to North America. Prices have surged 95% since mid-December, reaching $5.40/kg—the highest level since late 2022.

Conclusion

Paying attention to freight indices, especially over time, helps navigate the waters of international shipping.

Ocean freight rates had been generally dropping after the pandemic response-induced shipping boom and supply chain crisis. However, after the Iran-backed Houthi attacks began in the Red Sea and Gulf of Aiden, freight rates spiked.

Since the industry was flush with capacity, carriers were able to handle the additional ships it took to move the same amount of cargo around the world with the longer trips down and around Africa. Thus, freight rates began dropping again, but they still remain elevated.

The collapse of the Francis Scott Key Bridge created disruption on the U.S. East Coast, but has been mild in its impact on freight rates overall. It seems to have have lessened the decreasing rates a little, even making some hold stable for a week or so, but the downward pressure on freight rates appear to be enough for freight rates to keep coming down, at least a little bit, in the upcoming weeks.

Of course, new events could create unexpected challenges for the international shipping industry at any time, but trends in freight rates help keep shippers prepared for the future. It also helps to monitor known potential perils for the international shipping industry like the ILA’s strike threat, which would shut down ports all along the East and Gulf Coasts.

As always, we keep an eye on the various things impacting international shipping and talk about them here in Universal Cargo’s blog.