The reduction and consolidation of sailings implemented by shipping companies during the May Day holiday have had a significant impact on market freight rates, leading to a substantial increase. Originally, the freight rate for each FEU (Forty-foot Equivalent Unit) on the US West Coast was approximately $4,200, around $5,300 on the US East Coast, and about $3,500 on the European route. According to the latest news, starting from May 15, freight rates on both Europe-US routes will increase by $1,000 uniformly.
Senior executives in the shipping industry are concerned about the continuous rise in freight rates, believing that it may further suppress consumers’ purchasing power and bring a series of market aftereffects. At the same time, the persistently high freight rates are unbearable for many freight forwarding companies and foreign trade enterprises. As a result, goods are piling up at ports, affecting payment for goods and the scale of subsequent orders.
Mediterranean Shipping (MSC), the world’s largest liner company, reintroduced the Diamond Tier freight rates implemented during the pandemic last Friday, which are freight rates with guaranteed space. Among them, the freight rate for each FEU on the US West Coast has risen to $8,000, and on the US East Coast, it has reached as high as $10,000. The effective date is from May 15 to May 31.
Industry experts analyze that during the pandemic, the increased demand for working and studying from home drove the demand for related goods. However, it also led to soaring prices of goods and freight rates, subsequently causing inventory backlogs and inflation problems. Now, the combination of the Red Sea crisis and shipping companies’ capacity control and adjustment strategies has once again led to soaring freight rates. This raises concerns that the purchasing power of European and American end consumers will be affected, potentially resulting in a reduction in order volume. There is a fear of repeating the post-pandemic scenario of a sharp decline in demand and freight rates hitting rock bottom and remaining sluggish. Although the market outlook for the third quarter is not currently pessimistic, the industry generally worries that the peak season may not be prosperous.
Under the pressure of current overcapacity, shipping companies hope to absorb the excess capacity by rerouting ships around the Cape of Good Hope due to the Red Sea crisis and combine it with capacity control strategies to make a profit when freight rates rise significantly. This is to prepare for the possible rapid decline in freight rates in the future.
May is not the traditional peak season for the shipping market. This wave of price increases has left many sellers at a loss. Industry insiders analyze that the occurrence of situations such as overbooked cabins, container offloading, and soaring freight rates during the traditional off-season is determined by multiple factors. On the one hand, overseas demand has increased, and the supply-demand relationship in the transportation market is favorable. On the other hand, the continuous Red Sea crisis has led to tight capacity, and the contradiction of container shortages caused by rerouting has begun to emerge. Maersk previously announced that the disruption caused by the Red Sea turmoil to the container shipping industry is spreading. It is expected that the container transportation capacity between the Far East and Europe will decrease by 15% – 20% in the second quarter of this year.
Due to the combination of multiple factors, sea freight rates have soared. One seller said that with the heating up of the shipping market, not only sea freight rates but also air freight and trucking freight rates have increased. In response, many sellers choose to wait and see, considering recalculating costs and postponing shipping plans. Meiou Cloud Warehouse hereby suggests that all sellers plan the transportation arrangements of goods in advance, keep a close eye on market changes, and flexibly choose transportation methods.
