Early Peak Season, High Freight Rates, & 5 Factors Shaping Ocean Freight Shipping 2024

It’s not unprecedented, but we’re looking at an early peak season for international shipping this year. Analyzing wide industry reporting, the demand side of ocean freight has picked up in April and May in a similar way to how it normally increases in June through September. Anecdotally, Universal Cargo’s own internal numbers support the larger reporting on demand, as our shipment numbers increased by about 30% in April and another 8% in May.

This surge in demand combined with current constraints on cargo has caused ocean freight spot rates to really increase, with some shipping reporters describing rates as skyrocketing. It’s not totally unsimilar to what we saw with freight rates during the pandemic’s shipping boom and the initial Houthi attacks in the Red Sea. But are we looking at a spike in freight rates or will they remain high for a longer period of time?

Let’s look at five factors affecting international shipping right now and see if we can make projections.

1. Capacity Shortages

The Iran-backed Houthi attacks in the Red Sea and Gulf of Aiden have not ceased. In fact, reports say the Houthi rebels are only widening their range of attacks. That means a continuation of round-Africa services, which strains vessel capacity, even helping to create some capacity shortages. Unfortunately, there is still no end in sight to the Houthi attacks and vessel diversions.

Meanwhile, port congestion is slowing things at Asian and Western Mediterranean shipping hubs. The surge in demand exacerbates this issue, leading to longer waiting times for vessels. That further constrains capacity for ocean freight around the world, impacting webs of supply chains.

2. Carriers Adjust to Manage Capacity

Perhaps ocean freight carriers have more foresight than they’re given credit for. Leading up to this point in time, there has been an influx of ships and capacity into the industry. It was originally believed all that increase was going to create overcapacity in the ocean freight industry and possibly cause carriers to fall back into an unfavorable position where unhealthily low freight rates would force them to suffer high losses.

Instead, that capacity was greatly needed when drought caused constraints on ships crossing the Panama Canal and Houthi attacks forced carriers to divert around Africa instead of going through the Suez Canal.

Maybe there was luck involved with the arrival of that capacity, but carriers are also taking other strategies right now to manage capacity more effectively.

For example, ocean freight carriers are adjusting transpacific allocations. They’re reducing allocations to non-vessel-operating common carriers (NVOCCs) for fixed-rate bookings while also adjusting services.

For some specifics on the latter, here’s a quick list RS Logistics emailed to Universal Cargo of the Ocean Alliance’s revision of transpacific services and port rotations:

• HTW service (Asia to North America West Coast): Tacoma port call dropped, new rotation includes nine port calls starting with Yantian.
• HTW service will be operated by Evergreen (HTW), while CMA CGM (GEX), COSCO (AAS3), OOCL (PCS2) and ONE (CP4) will be slot charterers.
• There will be eight vessels deployed on the service, with an average vessel capacity of 13,000 TEU.
• The revised port rotation of the service will be as follows (9 port calls): Yantian – Los Angeles – Oakland – Kaohsiung – Port Klang – Cai Mep – Taipei – Kaohsiung – Yantian.
• ECX1/AWE4 service (Asia to North America East Coast): Adds Laem Chabang and Cai Mep, drops Cristobal, revised rotation includes nine port calls starting with Charleston.
• ECX1/AWE4 service will be operated by OOCL (ECX1) and COSCO (AWE4), while CMA CGM (SAX) and Evergreen (SAX) will be slot charterers.
• There will be thirteen vessels deployed on the service, with an average vessel capacity of 13,500 TEU.
• The revised port rotation of the service will be as follows (9 port calls): Charleston – Laem Chabang – Cai Mep – Hong Kong – Xiamen – Shanghai – New York – Savannah – Charleston.
• The changes aim to optimize service efficiency and address congestion issues.

Unfortunately, those aren’t the only kind of strategies ocean freight carriers are utilizing right now…

3. Carriers Implementing GRIs

Ocean freight carriers obviously want to make money and do what they can to increase and sustain higher freight rates for a healthy bottom line. As already mentioned, we’re seeing very high freights right now.

Lori Ann LaRocco, whose articles I’ve often quoted in Universal Cargo’s blog, wrote an excellent article this week about soaring freight rates for CNBC. One of its most eye-popping moments is:

A new round of general rate increases set for June 1 has Orient Star Group characterizing the additional $1,000 charge as carriers getting a bit “greedy” under the sudden increased demand.

MSC, the world’s largest ocean freight company, announced new rates of $8,000 to $10,000 for 40-foot containers to the U.S. West Coast, valid from May 15-May 31.

Wan Hai has said it will charge a premium for “space protection.”

Freight rate rises in April and May have been significant and sudden, catching many shippers by surprise, and there seem to be more to come. Shippers should brace themselves for an average general rate increase (GRI) of $1,000 across all carriers in the first week of June.

The additional “space protection” fees is something shippers should feel wary about. With capacity constraints and rising rates, shippers may also face limited booking options. That’s a situation some carriers appear ready to take advantage of.

4. Early Peak Season

I opened this post on the topic of the peak season starting a bit early this year. Here is a little more data to the point.

The National Retail Federation (NRF) projects that U.S. monthly ocean imports will surpass two million TEUs in May, peaking at 2.1 million in August. Often, the peak season peaks in September or October.

There are a number of factors to explain why shippers are importing a little earlier this year. Delays because of the Suez Canal/Red Sea diversions that we’ve previously discussed are among them, but there are other factors too…

5. USMX and ILA Strike Threat at East & Gulf Coast Ports

We’ve dedicated several blog posts to the ILA strike threat:

• ILA Already Threatening Strike
• ILA Stance Is Worse Than Just Threatening Strike
• We Have to Talk About the ILA Strike Threat
• No One Knows What Will Happen with ILA Port Disruption
• How to Prepare for Potential ILA Port Disruption

In that last one, and as a strategy we’ve suggested before, we included the tactic of shipping early to avoid the potential port disruption that could happen when the ILA’s contract expires September 30th.

Both the United States Maritime Alliance (USMX) and the International Longshoremen’s Association (ILA) have shown commitment to avoiding port disruption during contract negotiations since the terrible port disruption that happened on the other side of the country during the 2014-15 ILWU contract negotiations. However, the threat of strike that the ILA has made regarding the negotiations for this next contract makes shippers rightfully nervous.

Failed or stalled negotiations could hamper East and Gulf Coast ports’ ability to handle cargo during a time when peak season is typically still going strong. With the early start to peak season, it may also slow earlier, making October, when the current ILA contract is expired, slower than normal. Perhaps that slowing may come even earlier, as the NRF projects imports to peak in August. However, a peak in August could still mean strong numbers for September.

Conclusion

In summary, international shipping, for U.S. shippers in particular, faces several challenges. Big increases in demand and freight rates early in the peak season could mean a weaker-than-normal end to the peak season. Shippers should absolutely expect freight rates to remain high in June. And if NRF’s projections are correct, in July and August too. Even with the early demand surge to the peak season and without NRF’s August peak projection, it would be surprising for July and August not to maintain peak season demand we’re now seeing.

September, on the other hand, will be interesting to watch. Many shippers may be trying to complete their shipments before September for fear of disruption from the ILA negotiations. However, there may be a last minute surge just before the master contract for the East and Gulf Coast dockworkers expires. There’s a possibility of downturn in September, but I believe that if the peak season fizzles out early, it will be with lower than normal importing activity in October.

Despite a high level of economic uncertainty, to put it nicely, retailers are still expecting fairly high spending from consumers. That may sustain demand beyond August and through the entirety of the typical peak season months. However, I expect a market share surge of imports, and probably exports too, for West Coast ports, dropping East and Gulf Coasts’ share, in October and probably November. September could see that market share adjustment too.

My best hypothesis for freight rates is that they’ll somewhat settle at these high rates for these next couple months, at least, but start coming down a little bit by October. Big drops are more likely in the last couple months of the year. However, if the ILA strikes, another freight rate surge could easily ensue, starting in October and carrying into the last two months of the year.