2024 to Date: Understanding Market Turmoil
Partrik Berglund CEO & Co-founder, Xeneta
When the Xeneta 2024 Outlook Report was published in October 2023, average spot rates on major trades out of the Far East had fallen to levels not seen since the start of 2019, before the Covid-19 pandemic brought chaos to the market
I stated back in October that the global picture could radically alter in the event of another Black Swan event. This warning has proved to be well-founded in light of the chaos stemming from the Red Sea crisis during the past six months.
“If rates go up too much relative to what has been contracted […], those shippers will be exposed to the real risk of not keeping their supply chains intact. Shipping lines will jack up the market and look at those [low paying] contracts, and in many cases, deem them non-profitable.
They are going to be inclined at every chance they get to not pick up those boxes.”
Patrik Berglund, October 2023
Demand is back at 2021 levels for ocean freight, with increasing capacity the story of the year so far.
A lot can change in six months
Back in Q4 last year, 2024 was looking to be a freight buyer’s market, but a lot can change in a small amount of time. The lesson we've learned is to never let the ocean freight container shipping industry lull you into a false sense of security – the next Black Swan is often only around the corner.
Every black swan event impacts the market differently, which is why understanding the nature of each one is vital.
The market spike during 2021, for instance, was caused by extraordinary consumer demand growth for Chinese goods, particularly in the US (but also Europe) during the pandemic.
Now, instead of being a demand issue, 2024's chaos centers around capacity. Namely, container ships diverting around the Cape of Good Hope rather than transiting the Red Sea. This means more shipping capacity is required to transport the same number of containers.
These changing dynamics impact stakeholders differently across the market.
For example, carriers were expecting to record massive financial losses in 2024, but the skyrocketing spot market will see them deliver a full-year profit, which seemed improbable six months ago.
There are also important distinctions between the spot and long-term market. While long-term rates aren't reaching the same heights as spot rates (major trades out of the Far East have increased by more than 300%), they are less likely to be honored. In fact, a notable number of shippers and freight forwarders are currently paying PSS and emergency surcharges on top of their contracted rates in an attempt to secure shipments – with only a few still getting what was agreed.
The smart shippers recognise that the current conditions are only temporary and are already thinking about how to position themselves for when the market does eventually turn in their favor.
Myriad of factors are squeezing capacity and driving ocean freight prices in 2024.
Increased appetite for change
The current events are another reminder that the market needs to think seriously about how it buys and sells ocean and air freight.
It doesn’t matter if you have a long-term contract – if you can’t use it to ship your goods then it is worthless. These contracts are seemingly only valid as long as the market doesn’t move significantly in one direction – and that is an extremely precarious position to be in.
There is an increased appetite from shippers to rethink how they agree contract terms. They want a better, smarter, friction-free, more data-driven way to solve how freight is currently bought and sold – and we’re excited for what that looks like.
According to Gartner, HSBC and others, uncertainty is here to stay, and the container shipping industry needs to working pro-actively to address this.
