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In response to the escalating Red Sea crisis, leading online container logistics platform Container xChange released a comprehensive report detailing the far-reaching effects on container trading and leasing rates worldwide. The report explores the intricate dynamics of the crisis, shedding light on the unprecedented surge in container prices and leasing rates, as well as the ripple effect on global trade routes.

1. IMPACT OF RED SEA ATTACKS ON CONTAINER PRICES

As container vessels take longer routes, capacity constraints contribute to a revival in container rates. The China-to-Europe trade lane has witnessed significant surges, with trading spot rates soaring in key Chinese ports. The disruptions are not confined to China; leasing rates bound for Hamburg, Germany, have doubled since Jan 1.

To provide context on the current state of average container prices in Shanghai, China, in comparison to the peak demand period during the COVID-19 pandemic (2021), we present a chart illustrating the price trends from 2020 to Jan. 29, 2024. The container prices skyrocketed to historic levels in 2021 due to the pent-up demand post COVID, reaching a peak of $6,171 in the last week of September 2021, and falling since then until December 2023 (keeping aside minor seasonal hikes). However, container prices have experienced a significant increase since the beginning of January 2024.

Weekly China-Europe Trading spot rates continue to shoot up: Trading spot rates for 40-foot-high cube cargo-worthy containers have witnessed a significant surge in key Chinese ports. Noticeable week-on-week increases have been recorded in Xiamen (23%), Shekou (19%), Guangzhou (10%), Huangpu (8%), and Nansha (8%). These disruptions are not confined to China; leasing rates bound for Hamburg have doubled since Jan. 1.

“Since the beginning of the Houthi situation, the trading prices for 40-foot-high cube units in China significantly increased because there is expected tightness around equipment availability in Chinese main ports ahead of Chinese New Year because the loop around Africa soaks up capacity and delays the return of empty equipment to China,” commented Christian Roeloffs, cofounder and CEO of Container xChange.

“At present, there is still surplus in the market. However, the challenge lies in securing space on vessels, and the PUCs (pickup charges) are considerably high. The suppliers are hesitant to reposition their containers to locations with elevated storage fees, and if they do, they often seek to offset these costs by demanding higher PUC.”

A Container xChange customer from India added, “Storage charges in India are inexpensive. Consequently, some NVOCC [non-vessel operating common carriers] opt to utilize containers from other companies rather than moving their own.”

Container xChange’s research indicates a global impact on container trading prices, with the top 10 locations experiencing substantial month-on-month percentage increases. European ports like Le Havre, France, and Duisburg, Germany, witnessed significant decreases, while ports in North America showed mixed results. Meanwhile, Asian ports, including Shanghai, China, and Xiamen, China, saw an increase in average container prices, indicating adaptation to disruptions.

Shown above are the top 10 locations with biggest percentage increase in average monthly container prices across the world.

There are varying degrees of impact on container prices across different regions. Some regions experienced a decrease in prices, while others saw an increase.

2. CONTAINER LEASING RATES CONTINUE TO RISE

Container leasing spot rates have mirrored the spikes observed in trading prices, especially in the China-to-Europe route. Rates have steadily increased, reaching notable highs. The expected continuation of disruptions indicates a prolonged period of challenges, requiring industries to adapt to structural imbalances in supply and demand.

“We’ve witnessed a continuous surge in leasing rates since around August-September 2023, starting at a low of approximately $200 for a one-way move from Ningbo or Shanghai to Hamburg, often referred to as pickup charges,” says Roeloffs.

“This escalation is primarily driven by two key factors. Firstly, the widening price gap in trading prices has played a pivotal role, and secondly, there’s a notable equipment scarcity across China. As the price gap widens and equipment availability tightens, the spike has become more evident since the beginning of 2024. It’s clear that the attacks in the Red Sea are not merely a passing phenomenon; they have substantial implications on the routing of container vessels, causing delays in their return trips to China. We have witnessed this surge to top at $800 for a one-way move, marking a fourfold increase.”

The Container xChange co-founder and CEO continues, “We do expect that after Chinese New Year the situation will decelerate and ease up owing to the drop in demand, carriers will be able to reconfigure their network and adjust to the longer transit times around the cape of good hope and are supposed to have a structural supply demand imbalance with a significance supply overhang.”

He concludes, “The situation is expected to persist for a longer than expected period of time and hence, we will probably have to live with this for a long time.”

Top trade routes with highest month-on-month rate hikes: In the period from Jan. 1-30, 2024, leasing rates for routes bound to Hamburg showed a substantial increase. For example, Qingdao to Hamburg rates surged from $260 on Jan. 1 to $1,060 by Jan. 30. Similarly, Shenzhen to Hamburg rates rose from $500 on Jan. 1 to $750 by Jan. 30. These figures highlight a significant upward trend in leasing rates during the specified timeframe, illustrating the impactful changes in the market.

Below is the list of the highest spikes noticed month on month from December 2023 to January 2024 across trade routes. The prices are the average leasing terms for SOCs (shipper owned containers) as observed on the Insights platform of Container xChange.

European ports experience substantial increases: Routes connecting Shanghai to European ports, such as Le Havre, Budapest, and Munich, witnessed some of the highest percentage increases. Le Havre recorded an extraordinary surge of 323.08%. This indicates potential challenges in the European supply chain, possibly due to the longer alternative route and increased shipping costs.

Impact on trans-Pacific routes: Routes to the West Coast of the United States, including Oakland, Los Angeles, and Long Beach, all in California, experienced notable increases (ranging from 30.94% to 51.71%). The rise in leasing rates suggests that vessels rerouting around the Cape of Good Hope are facing higher costs, potentially due to increased travel distances and fuel consumption.

Significant impact on transatlantic routes: Routes connecting Shanghai to key North American cities like New York, New York, and Cleveland, Ohio, witnessed considerable percentage increases. This indicates that the disruption is affecting the traditional transatlantic trade routes, with potential repercussions for industries relying on timely deliveries between Asia and North America.

Mixed impact on Asian routes: While routes to Chennai, India, experienced a substantial increase (73.33%), routes to Minsk, Belarus, showed a comparatively lower percentage rise (19.17%). This suggests variations in how disruptions affect different regions, possibly influenced by the nature of trade and supply chain dynamics.

3. INDUSTRIES IMPACTED BY RED SEA TURMOIL

The longer disruptions at the Red Sea trade route pose a significant threat to various industries, including automobiles, electronics, chemicals, consumer goods, machinery, and pharmaceuticals. Delays in the supply chain could lead to production interruptions, impacting global value chains.

“Effectively navigating this critical period requires enhanced predictive analysis, meticulous demand forecasting, and increased collaboration within the industry,” says Roeloffs. “By employing advanced planning techniques and maintaining agility in response to evolving situations, the manufacturing sector can not only overcome immediate challenges but also strategically position itself for long-term success. Adapting to the new normal will involve holding increased inventory, accounting for extended transit times, and acknowledging higher container rates as integral components of the evolving landscape.”

The impact extends beyond individual industries to the broader economy, emphasizing the vulnerability of just-in-time manufacturing processes to disruptions. Businesses across sectors will need to closely monitor and adapt to evolving circumstances to ensure the continued flow of goods through alternative routes if necessary.

A remarkably positive outlook on container price development: In January, the Container Price Sentiment Index (xCPSI), a proprietary container price sentiment tool by Container xChange, consistently maintained historically elevated levels, reflecting a widespread belief that container prices would continue to soar due to the ongoing Red Sea crisis. The industry anticipates sustained high prices, highlighting the profound impact of the crisis on global trade.

The industry’s expectation for container prices to remain exceptionally high in the foreseeable future urges businesses to stay agile and vigilant in their planning amidst evolving global trade dynamics.

The Container Price Sentiment Index (xCPSI) serves as a valuable metric for assessing the prevailing market sentiments among supply chain professionals on the anticipated trajectory of container prices in the upcoming weeks.

Container xChange serves as a global online platform facilitating container leasing and trading, connecting container users with owners. The platform streamlines the process of finding and exchanging containers, optimizing fleet management, and fostering collaboration across the shipping industry. Currently, 1,500+ vetted container logistics companies trust xChange with their business.

Container xChange has released its latest China market update, shedding light on the current container price trends in China. Despite expectations of price drops post-Chinese New Year, the market is witnessing a significant mismatch between buyer and seller price expectations, in a demand deficit environment.

According to Christian Roeloffs, cofounder and CEO of Container xChange, “There is significant imbalance between supply and demand price expectations for containers. Buyers are expecting price reductions in weeks to come, while sellers are holding off the inventory as they expect prices to remain stable due to tight capacity, especially after the diversions due to the red sea and highly imbalanced trade, particularly, for example from China into Russia.”

China’s exports to Russia grew by 12.5 per cent year on year in the first two months of 2024, while imports rose by 6.7 per cent.

Data from Container xChange’s market intelligence team reveals that while there is a surplus of units held up in Russia, capacity in that region remains saturated. This situation has not created enough confidence for significant price drops and has resulted in a cautious approach from both buyers and sellers, leading to a gradual filling up of depots. However, the current depot pressure is not yet strong enough to prompt traders and sellers to lower their price expectations, nor is there significant pressure from buyers to increase their price expectations.

“Looking ahead,” Christian Reoloffs continued, “while mid to long-term forecasts suggest a necessary adjustment in prices to restore liquidity, the present market sentiment indicates a reluctance to anticipate significant price drops.”

The buyer sentiment of further price declines is also echoed by the Container price sentiment index (xCPSI), a proprietary market sentiment tool for container prices by Container xChange, where the index value fell from an all-time high of 83 points in the last week of January’24 to 22 points as on 14^th March 2024.

Chart 1: Container Price Sentiment Index, xCPSI, by Container xChange, as on 15 March 2024

The holding off of the capacity is also due to a demand lull, if we look at the situation from a pure economics basis. The market is currently not being driven by demand.

The recent decrease in freight rates, from $3351 on 23 February 2024 to $3069 on 8 March 2024, represents an approximate 8.41% decline. This trend indicates a more balanced market and aligns with our observation that container prices are not showing significant increases in March.

“The decline in freight rates and the steady container prices suggest that demand is under pressure. Additionally, the management of the Red Sea crisis has alleviated concerns of sudden container price rises, providing a more predictable environment for freight forwarders and stakeholders.”

Deep Dive into China Container Rates:

The analysis of container trading price data from November 2023 to March 2024 reveals a cyclical upsurge in prices leading up to the Lunar New Year, followed by a stabilization in prices post the holiday period. Cities such as Dalian, Fuzhou, Guangzhou, Shanghai, and Qingdao have shown significant percentage increases in prices, aligning with the cyclical trend.

Table 1: Container Trading Price development in China (November 2023 – 15 March 2024, US dollars for 40 ft high cube cargo worthy containers)

The average prices for 40 ft cargo-worthy containers in China was around $1700 in November 2023, while this has stayed at elevated levels since the Houthi attacks at $2100 so far in March 2024.

In 2024, China’s economic outlook is characterized by a blend of opportunities and challenges. It is expected that the country’s leadership will target a growth rate of approximately 5%, supported by robust government spending to stimulate economic growth and bolster public confidence. Fiscal expansion is anticipated to be a key strategy in driving growth, particularly through increased public investment and fiscal transfers. Geopolitically, China faces complexities in its relationships with Western nations. Relations with emerging economies are also expected to be strained, especially regarding security issues in the South China Sea.

Container Rates Surge Amid The Red Sea Crisis

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