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Rising capacity shortages and freight rates

In May and June, a critical shortage emerged in both shipping capacity and available empty containers. The underlying cause of this is a combination of the ongoing rerouting around Africa, bottlenecks at ports in Asia, and a sudden significant increase in the volume of freight from Asia.

This has led to significantly rising spot rates, particularly from Asia to Europe and North America. The overall SCFI spot index has increased by 65% in just five weeks since early May, mainly driven by trans-Pacific routes and those between Asia and Europe.

Although there are theoretically enough ships to navigate around Africa, no capacity remains to address other issues should they arise. And now, there are two new problems. Firstly, there are bottlenecks in major ports in Asia, with some ships having to wait up to a week to dock at the Port of Singapore. Additionally, there is a sudden increase in export cargo from Asia, further exacerbating the situation.

This development has taken all parties involved by complete surprise. For instance, the shipping companies presented their quarterly results to their shareholders in April. At that time, one of the main messages was that rates would decline in 2024 as more new ships became available.

Two Phases of Rate Increases

This situation shows some similarities to how the market was impacted at the beginning of 2020, when freight rates rose and capacity became scarce. Comparing this to the pandemic, the disruption occurred in two phases.

Phase one was in the second half of 2020 with rapidly rising rates on the Trans-Pacific route, driven by the pandemic demand surge. At that time, market saturation spread to other trade routes, causing rates to rise elsewhere as well, peaking in February 2021. Rates began to decrease slightly, but then the Ever-Given ship got stuck in the Suez Canal, dramatically worsening the problems, and leading to a second phase of rising rates. This peaked in September 2021 and again in January 2022.

The market is currently reaching levels like the highest points seen in phase one of the pandemic, raising the question of whether this trend will continue or normalize.

Indicators of capacity pressure and rising charter rates 

One indicator is that the inactive fleet of ships, those without work, has dropped to 0.6%, the same as during the worst of the pandemic – despite millions of TEU capacity being added to the fleet since then. Another indicator is that charter rates for ships are rising quickly, and the contract period for chartering a ship is also increasing rapidly, approaching nearly two years.

A third indicator is that small niche shipping companies are seeing an opportunity to launch new services on major trade routes with small ships. An example of this is that Ellerman Line just started a service from Asia to Europe in June and July with small ships of 2700 TEU capacity. Such services are only possible when there is significant market pressure.

The second and third indicators together also point to a development where smaller ships are being taken out of regional services and deployed on longer distances. This will lead to upward pressure on rates across all trade routes, similar to what happened during the pandemic.


Looking ahead, it is difficult to envision a realistically balanced market scenario. Instead, two very different scenarios are likely for the rest of 2024 and into 2025.

In one scenario, the situation in the Red Sea is resolved. In the short term, this will lead to significant bottlenecks, especially in Europe. This is because the first ships returning to using the Suez Canal will overtake those already sailing around Africa. This results in a 'ketchup effect' with large amounts of cargo arriving in Europe simultaneously. Once this problem is resolved, the market will suddenly have significant overcapacity, leading to rapidly falling spot prices. Eventually, these will drop so low that shipping companies will start to lay up ships.

In the other scenario, the problem in the Red Sea is not resolved. If the current freight boom from Asia does not subside and the bottlenecks at ports are not resolved, spot prices will continue to rise rapidly. In this scenario, it is possible that rates will not only reach the levels seen during the pandemic but may also set new records.

Therefore, there is little comfort for shippers who simply want a stable and predictable market in the short term. The Houthi attacks on ships in the Red Sea and the Gulf of Aden continue, and as of early June, it appeared they have become more effective in hitting the ships they target.

Given the circumstances, shippers must prepare for a potential further deterioration of the situation.

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