As the Federal Reserve and the U.S. economy report positive news on inflation, a major concern arises in global trade: rising freight rates. Forecasts suggest ocean cargo prices could reach $20,000, potentially hitting the COVID-era peak of $30,000, and remain high into 2025.
Spot ocean freight rates from the Far East to the U.S. increased by 36%-41% month-over-month, with general rate increases by ocean carriers rising approximately 140%. This has pushed the price of a 40-foot cargo container to about $12,000.
Paul Brashier, vice president of global supply chain for ITS Logistics, highlights a lack of containers and limited vessel capacity, forcing shippers to the spot market. This situation is driving rates to levels not seen since the post-COVID crisis. Port terminals are bottlenecked, and empty containers are scarce.
Goetz Alebrand, head of ocean freight at DHL Global Forwarding Americas, is not optimistic about a decline in freight rates soon. He predicts rates might not ease before the Chinese New Year.
Sea-Intelligence forecasts that Asia-Europe spot prices could exceed $20,000, considering the Red Sea crisis and increased nautical miles. Alan Murphy, CEO of Sea-Intelligence, notes that severe distress can push rates per nautical mile to very high levels.
Peter Boockvar, chief investment officer at Bleakley Financial Group, warns of a new era of inflation volatility, emphasizing that higher rates for longer are real. Shippers are frustrated by the sharp rise in supply chain pricing, with Nate Herman of the American Apparel and Footwear Association pointing to a 140% rate increase despite low demand and ample supply.
Freight intelligence firm Xeneta reports a 43% year-on-year increase in China to North America air freight spot rates in May, reaching $4.88 per kilogram. Increased demand, especially from e-commerce giants like Shein and Temu, is a driving factor.
Global air cargo spot rates rose 9% year-on-year in May, while trade from Europe to North America saw a 21% rate decline. The CNBC Supply Chain Heat Map shows a disconnect between ocean freight prices and demand.
According to FreightWaves SONAR, container bookings and freight orders from shippers to ocean carriers are down 48% month-over-month. Ocean carriers are canceling vessel sailings, creating a tighter market for containers and increasing prices. Longer Red Sea transits also add to container scarcity.
Smaller ocean carriers are repositioning vessels to capture higher revenue, creating challenges for supply chain operations. Port congestion is worsening, with key ports in China and Southeast Asia experiencing significant delays.
DHL recommends pre-booking freight four to six weeks before departure to ensure timely service.
East Coast, Gulf Coast Strike Concerns
West Coast prices could rise further due to the suspension of contract talks between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX). ILA President Harold J. Daggett has warned of a potential coast-wide strike on October 1, 2024.
Gene Seroka, executive director of the Port of Los Angeles, noted only a fractional amount of containers diverted to mitigate risks from the Red Sea to the Panama Canal drought and ILA/USMX negotiations.
Talks were suspended this week over union allegations of automation violations. Maersk insists it remains in full compliance with the ILA/USMX master contract and continues to engage with all stakeholders.
Jared Bernstein, chair of the United States Council of Economic Advisers, emphasized the Biden administration’s support for collective bargaining and encouraged both sides to negotiate in good faith to avoid economic disruption.
