New peak season paradigm develops in Asian container markets

The peak season schedule for westbound Asia-Europe container markets, which typically begins in June, has already begun as Red Sea diversions, port congestion and container shortages pressure shippers to secure their shipments amid delays in Asia, according to an S&P Global Commodity Insights analysis.

The increased demand has driven the FAK container spot market for Westbound North Asia – North Europe cargo to its highest since mid-March, with the Platts Container Rate 1 - PCR 1 rate assessed at $4,950/FEU on May 14, up a sharp $2,150/FEU from March 15, Commodity Insights data shows.

Extended transit times around Southern Africa for Far East Asia-to-Northern Europe shipments have caused service schedules challenges for carriers. Regularly carriers observe weekly services on major trade lanes, now however, blank sailings are rife due to time taken to transit around the Cape instead of the Suez Canal.

As shippers prepare for end of year holidays, not only have orders started sooner, as early as April, but larger bookings are being made.

"A lot of customers are looking at their supply chain forecasts and booking 40/TEU a week instead of 20/TEU," a carrier source continued, "our clients have cleared their warehouses of old stock to get new stock in for the conventional busy periods."

Increased spot market

Sources also said that major liners are taking advantage of the current conditions since some shippers delayed securing long term contract rates and are now reeling on the spot rate market.

Shippers have tended to lock in contracts for the season in March or April, when prices tend to bottom out but this year the price increases started earlier than usual and as shippers waited for prices to drop, they instead kept rising.

Having missed the opportunity to lock in contracts, "the space allotted to them (shippers) on named account deals has been taken back and opened up to the spot market," a carrier source said.

Another issue for forwarders is a continued lack of space on vessels along with a dearth of container availability in Chinese ports that is also supporting higher prices.

"We are afraid rates will go even higher, rates are already high but carriers are maximizing revenue as they try to reduce their long term contracts, prioritizing the FAK spot market," a forwarder source said.

"Ningbo and Shanghai are congested, there is currently vessel berthing delays of 3-6 days due to ship bunching and fog, another twelve of our boxes have been rolled for next week as Yantian has a lack of 20"/40" containers," a forwarder source said, "those on long term contracts are in a happy place and those left on spot rates are struggling."

Logistics sources are expecting spot rates to remain bullish in the short term as major carriers begin releasing further general rate increases (GRIs), their fourth announcement in three months. The effect of the Red Sea diversions are set to impede services for the foreseeable future despite carriers best efforts to contain the market with additional vessels, leasing further container equipment and alteration of service loops, sources said.