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Beyond the peak

As anticipated, spot rates on the major routes from Asia peaked in mid-July and have since begun to decline. The drop from Asia to Europe has been very gradual, while rates from Asia to the U.S. West Coast are decreasing at a slightly faster pace.

The recent declines in spot rates are not an indication that the market is on the brink of collapse. Instead, they represent a correction now that we have passed the peak of the high season. This is similar to the moderate decline in spot prices observed between mid-January and late April 2024, which was a downward correction following the shock caused by the Red Sea crisis and the regular high season leading up to Chinese New Year.

Positive outlook despite global tensions

Container shipping companies clearly do not expect a market collapse in the second half of 2024. On the contrary, they have raised their profit expectations. Maersk now anticipates an EBIT-level profit of $3 to $4 billion for the entire year of 2024. In the first half of the year, their profit amounted to $1.1 billion, indicating they expect a profit between $2 and $4 billion in the second half. This suggests they do not foresee a sharp downward market correction.

The situation in the Red Sea remains unchanged, with regular attacks on commercial vessels in the region. Additionally, the U.S. Vice Admiral commanding the U.S. fleet in the area has stated that he does not believe military intervention alone can resolve the crisis. Instead, an international diplomatic effort is required. This means a quick resolution for the region is unlikely in the short term, ruling out a resumption of traffic through the Suez Canal. As a result, the balance between supply and demand for shipping capacity remains in favor of the carriers.

Ongoing issues with port congestion are increasingly causing shipping companies to review their services and call at fewer ports in a single rotation. This may slightly improve vessel punctuality, although the overall level remains low. In June, only 54% of ships on the major routes arrived on time.

The latest data shows that cargo volume in June 2024 increased by 6.3% compared to a year earlier, measured in the number of loaded containers. However, if we consider TEU*Miles, which also accounts for the detours via Africa, it appears that demand has increased by as much as 27% compared to last year. Although the capacity of the container fleet is set to rise by 10.6% in 2024, this increase pales in comparison to the impact that the Red Sea crisis has had on demand.

Looming strikes a potential crisis for U.S. ports

Another concern is the risk of a strike on the U.S. East Coast. Negotiations between the longshoremen's union and the container terminals have stalled, with the current agreement set to expire on September 30. The union has announced that they will strike from October 1 if a new agreement is not reached. In recent weeks, they have distributed materials to their members that glorify previous strikes, indicating that they are preparing for a new strike. However, it is difficult to precisely estimate the likelihood of a strike. My personal assessment is that the chances of a strike are higher than those of a resolution before October.

A strike would lead to significant congestion at East Coast ports. It is estimated that it takes 4-5 days to recover from each day of strike-related delays. This means that a one-week strike in early October would result in congestion likely to last until mid-November. This would cause spot rates to rise sharply, surpassing the peak seen in July 2024.

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