Freight rates continued to decline in September, with Drewry’s world container index down by a cumulative 39% since its peak on July 25. However, declines on routes from China to the US were limited to 1-4% this past week due to the upcoming strike at US East Coast ports on October 1. This raises the question: Can the strike halt the declines, and if so, to what extent?
Slump in freight rates deepens
According to Drewry , the world container index declined by 5% to $3,970 per 40ft container this past week. Rates have fallen by a total of 39% since they hit their peak on July 25. Now, freight rates are back to their peak in January, when the Red-Sea crisis first erupted. As can be seen from the graph below, the downturn has brought prices down to the midpoint of the upturn that took place between April and July.
Ex-China routes maintain slump; US rates down slightly
Drewry’s China to US West Coast route decreased by 1% this past week to $5,580 per 40 ft container and declined by a cumulative 31% since mid-July. China to US East Coast rates were also down by 4% this past week to $6,364 per 40 ft container and fell by a total of 39% since July 25.
Drewry’s China to Northwest Europe route fell by 9% last week and has decreased by a significant 53% since mid-July to stand at $4,682 per 40-foot container. Meanwhile, rates to the South Europe dropped by 6% over the past week bringing the rate to $4,928 per 40-foot container. Rates declined by a total of 43% since mid-July.
Drewry-Freight-September
Freightos index declines; rates to Europe down significantly
According to Freightos , the global container freight index declined by 6% this past week to $4,701 per 40 ft container.
Rates from China to the US West Coast increased by 1% to $6,875 per 40-ft container last week. Meanwhile, rates to the US East Coast were down by 4% to $8,952.
Meanwhile, spot freight rates from China to Europe declined more significantly. Accordingly, rates from China to North Europe declined by 17% this past week to $5,412 and by 10% for Mediterranean to $5,276 per 40 ft container.
Will the downturn slow down?
A possible strike ahead
This week, rates from China to the US in the Drewry and Freightos indexes experienced minimal decreases compared to European routes, while Freightos rates from China to the US West Coast even increased by 1%. One major factor contributing to this situation is the approaching strike in the US East Coast ports on October 1 by the International Longshoremen’s Association (ILA). Negotiations between the ILA and port management broke down over the summer, and the union voted unanimously to authorize a strike.
If a strike occurs, it could paralyze five of the ten busiest ports in North America, impacting 43%-49% of US imports and billions in trade, according to CNBC.
The looming strike has already triggered shifts in supply chains, diverting cargo from East to West Coast ports. Experts warn that even a brief stoppage in ports could lead to severe cargo delays lasting several weeks.
Fears of tariffs
Moreover, the current US presidential candidate Donald Trump’s proposed import tariffs could lead to a significant increase in ocean shipping costs, reminiscent of the market spike during his first presidential term. His trade policy includes blanket tariffs of up to 20% on all imports and additional tariffs ranging from 60% to 100% on Chinese goods. Data from Xeneta suggests that when tariffs on China imports were heightened during the 2018 trade war, ocean container shipping rates surged by over 70%.
Nonetheless, it is questioned whether these developments could ease or halt the ongoing slump. Although they threaten the future of freight rates and may slow the decline, it remains unclear to what extent the downturn can be stopped.
Is there no end in sight for the slump?
On the other side of the coin, some analysts expect the downturn to continue unabated well into 2025. According to Linerlytica , container freight rates could decline by 70% by June 2025.
Container freight rates are poised to fall by over 70% by June next year, based on the latest CoFIF EC contracts traded on the Shanghai International Energy Exchange (INE). Although the drop is not as severe as the freight rate collapse seen at the end of 2022, current freight futures prices anticipate continuous declines over the coming 12 months, with no rebound expected at the end of this year and no repeat of this year’s post Chinese New Year rate rally in 2025, Linerlytica said.
Nevertheless, Linerlytica still believes that a prolonged strike on the US East Coast might be the only way to boost the weak freight market, potentially impacting 15% of global capacity.
