2024 Ocean Freight Insights at a Glance
What's changed? It turns out, quite a lot. The forecasts highlighted in blue are from Xeneta's 2024 Outlook, published October 2023. Those in purple are the updated outlook, complete with market context about what you can expect to see in the second half of 2024.
October Outlook 2024: Demand to grow by 2.5%
2024 H2 Update: 18.3% increase in TEU miles has massive impact on market
In October 2023, actual volumes of containers transported was the most relevant metric to understand the market.
However, the Red Sea crisis has changed this, with TEU miles becoming an important measurement of demand due to the sudden and dramatic increases in sailing distances around the Cape of Good Hope.
In the first four months of 2024, each container shipped globally was being transported 9.3% further on average. This generated a global increase of 18.3% in TEU miles.
Measuring demand in this way will remain important as long as Red Sea diversions are in place.
While increased sailing distances would be enough to have a significant impact on the market in isolation, the number of containers being moved is also increasing in 2024.
This more traditional demand measurement shows growth during the first four months of 2024 of 8.2% compared to the same period in 2023 (source: Container Trades Statistics). However, this should be viewed in the context of slow demand in the early part of 2023, which picked up later in the year.
If demand for the months of May-December 2024 stays on par with 2023, we will see a full year demand growth of 2.6%.
On the other hand, if demand follows the levels seen during the record-breaking year of 2021, full year demand growth in 2023 will be 3.8%.
October Outlook 2024: Record deliveries of new ships to compound overcapacity
2024 H2 Update: Supply to grow by 8.4% (but overcapacity is no longer the driving factor)
In October, overcapacity of container shipping supply was the prevailing factor in the market in terms of driving rates down in 2023. With record deliveries of new ships in 2024, this issue was expected to place further downward pressure on rates this year.
Again, the Red Sea has changed this situation.
Instead of struggling to fill ships, carriers are now desperately trying to bring in additional capacity due to the impact of the 18.3% increase in TEU miles.
By early-June 2024, the container shipping capacity (fleet) had grown by 1.6m TEU (5.3%), with a further 1.1m TEU expected delivered in the remainder of the year (source: Clarksons Research and Xeneta estimates).
Consecutive years of record deliveries is being absorbed by the Red Sea situation, however, when/if container ships return to the Red Sea then overcapacity will once again prevail.
October Outlook 2024: Carriers to rely on smart capacity management to mitigate overcapacity
2024 H2 Update: Capacity management thrown out of the window
Carriers are no longer incentivised to limit capacity in order to make freight rates profitable - quite the opposite, they are desperately trying to introduce ships amid a capacity crunch.
This is demonstrated in the fact that, despite record new deliveries, carriers are bringing in additional ships from the extremely tight charter market at hugely inflated prices. The idle fleet is currently at 0.7% (source: Alphaliner).
This situation is also seeing carriers hold on to older ships that were due to be demolished in 2024.
October Outlook 2024: Spot rates to remain volatile throughout the year
2024 H2 Update: Spot volatility has surpassed expectations in wake of latest Black Swan
The Xeneta outlook in October last year suggested a volatile spot market, but the level of volatility witnessed in 2024 is beyond earlier expectations.
Volatility in 2024 is demonstrated through an initial spike in spot rates on major trades out of the Far East in January and early February following the Red Sea crisis.
Spot rates then began to soften before escalating once again in May, demonstrating there can still be market movement in both directions even while the underlying impact of the Red Sea crisis remains.
For example, the rapid spot rate growth and general concerns over the Red Sea has prompted some shippers to frontload imports, including Christmas goods, ahead of the traditional Q3 peak season - creating a vicious circle.
Average spot rates are now more than 300% up compared to December on these major fronthaul trades.
It should also be noted, not all trades have seen spot rate increases, for instance there have been flat, or even declining, rates on some backhaul and secondary trades. This situation can change as the impact of the Red Sea situation spreads across other global trades.
October Outlook 2024: Steadier long-term rates than 2023, tracking just below or above spot market
2024 H2 Update: Long-term rates remain relatively flat but severe risk lies in spread with spot market
The Global Xeneta Shipping Index (XSI®), which measures all valid long-term contracts in the market, stood at 147.8 points in June, which is 6.4% down from December 2023.
However, the spot market on major trades out of the Far East has increased by more than 300% in this period. This spread represents a critical risk for shippers, some of whom have not been able to ship containers on their long-term contracts, had cargo rolled or pushed onto the spot market.
Be aware, experiences will vary - carriers are prioritizing larger volume shippers with direct contracts. Freight forwarders and smaller shippers (especially those contracting with freight forwarders) are less of a priority for carriers and therefore more vulnerable.
Shippers must understand the dynamics at play to make the best decisions for their own supply chain management.