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Navigating Global Economic Challenges: UN Report Highlights Concerns and Calls for Multilateral Action

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Global Logistics, Global Trade Daily, International Trade, News

Navigating Global Economic Challenges: UN Report Highlights Concerns and Calls for Multilateral Action

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Amidst ongoing economic uncertainties, the latest report from the United Nations Trade and Development (UNCTAD) warns of potential further deceleration in global economic growth and trade disruptions in 2024. Secretary-General Rebeca Grynspan emphasizes the need for coordinated multilateral action to address shifting trade patterns, escalating debt, and the mounting costs of climate change, particularly impacting developing countries.

While expectations for lower interest rates offer some hope for alleviating pressure on private and public budgets worldwide, the report underscores that monetary policy alone cannot solve key global challenges. It emphasizes the necessity of balanced policy approaches, including fiscal, monetary, demand-side, and investment-boosting measures, to achieve financial sustainability, job creation, and improved income distribution.

Highlighting rising protectionism, disrupted maritime routes due to geopolitical tensions, and climate change, the report identifies threats to global trade and economic stability. Challenges such as attacks on ships in the Red Sea and disruptions in the Black Sea exacerbate existing trade disruptions, while rising protectionism and trade tensions further hinder economic growth.

The report also delves into the pressing issue of global debt architecture reform, particularly impacting developing countries facing significant debt and development challenges. It calls for the establishment of efficient multilateral frameworks to address sovereign debt issues and strengthen the global financial safety net.

Additionally, the report addresses the rising food prices affecting low-income households in developing countries, exacerbated by factors such as global commodity cycles, supply chain concentration, and stricter standards imposed by importing nations. Food insecurity remains a critical concern, with projections indicating a potential increase in chronically undernourished individuals if current market trends persist.

In conclusion, the report emphasizes the urgent need for concerted multilateral efforts to navigate the complex economic landscape, mitigate risks, and ensure sustainable development and prosperity for all.

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Global Logistics, Global Trade Daily, International Trade, News

Surging Demand: Air Freight Growth Defies Seasonal Trends

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Recent data from the International Air Transport Association (IATA) reveals a notable surge in air freight demand, with the Red Sea crisis and expanding consumer demand outside the US cited as key drivers. Despite the typical seasonal downturn between January and February, African and Middle Eastern markets experienced month-on-month growth, resulting in impressive annualized growth rates.

In February, overall demand for air freight, measured in cargo tonne-kilometres, increased by 11.9% year-on-year, marking the third consecutive month of double-digit growth. International demand saw even stronger growth at 12.4%, underscoring the buoyancy of global air freight markets.

Europe led the growth trajectory with a notable 15% increase, outpacing Asia Pacific and North America. Surprisingly, North America saw lower international traffic growth compared to domestic routes.

IATA Director General Willie Walsh highlighted the contrast in background trade growth, emphasizing air cargo’s resilience amidst political and economic uncertainties. Purchasing managers indexes also indicate a slow recovery in manufacturing activity and exports, further supporting the strong air freight demand.

The reasons behind this robustness are not entirely clear, but it suggests a recovery in consumer demand outside the US and a desire to quickly replenish inventories. The Red Sea crisis is also believed to be influencing market dynamics in the Middle East and Europe.

Despite the surge in demand, the impact on prices is unexpected due to rapidly growing capacity. Available cargo-tonne-kilometres surged by 13.4% year-on-year, driven by passenger jet belly capacity, while freighter cargo-tonne-kilometre growth remained relatively modest at 3.2%.

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Uncategorized

WTO Forecasts Global Trade Rebound Amidst Challenges and Uncertainties

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The World Trade Organization (WTO) anticipates a resurgence in global merchandise trade after a sluggish performance in 2023. Projections suggest a 2.6% growth in trade volume for the current year, followed by a further increase of 3.3% in 2025, driven by declining inflation and improved economic conditions.

While last year’s 1.2% decline in trade was larger than anticipated, particularly in Europe, it remains relatively modest overall. However, the region’s subdued trade growth was attributed to factors like high commodity prices, notably natural gas, which impacted both exports and imports.

Looking ahead, Asia is poised to play a significant role in driving global trade, accounting for a substantial portion of both exports and imports. Africa’s exports are also expected to surpass pre-pandemic levels by the end of the year, showcasing resilience and potential growth in the region.

Despite the positive outlook, geopolitical tensions, supply chain disruptions, and climate change effects pose risks to the trade landscape. Recent attacks on commercial ships and disruptions in key maritime routes highlight ongoing challenges faced by the global trading community.

Services trade, on the other hand, remained robust, with notable growth observed in financial and insurance services. However, geopolitical tensions have contributed to a riskier environment, impacting trade patterns and flows.

The WTO underscores concerns regarding rising protectionism and potential fragmentation in trade flows, emphasizing the need for collaborative efforts to sustain the recovery and promote inclusive trade practices.

While uncertainties persist, the WTO remains cautiously optimistic about the resilience of global trade. However, continued vigilance and concerted action are essential to navigate the evolving trade landscape and mitigate potential risks to the recovery.

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Global Logistics, Global Trade Daily, International Trade

Adapting to Emerging Global Trade Routes

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In the wake of recent geopolitical crises, global trade routes have undergone significant transformations, necessitating a reevaluation of how goods flow along emerging corridors. Traditional routes, such as the northern Eurasian corridors, have experienced declines in freight flows since the onset of the conflict in Ukraine, while the Red Sea crisis has further disrupted east-west trade, prompting a search for alternative routes.

The rise of new trade routes, particularly the Middle and Southern Corridors, has reshaped the dynamics of global transport and trade. These corridors, linking China and Central Asia through the Caspian Sea or Iran to Türkiye and Europe, offer efficient door-to-door road transport options and facilitate the seamless integration of different modes of transportation.

In recent years, the Middle Corridor has witnessed remarkable growth in transit volumes, with a staggering 150% increase compared to the previous year. Similarly, the Southern Corridor has seen significant rises in transport operations, highlighting its role in facilitating trade between Türkiye and Central Asian countries.

The attractiveness of these corridors is underscored by their efficiency, with transport from Lianyungang, China, to Türkiye or EU countries taking significantly less time compared to maritime routes via the Suez Canal.

However, the Red Sea crisis has presented new challenges, necessitating innovative solutions to mitigate disruptions to global trade. Transport companies have begun rerouting shipments through the Gulf Cooperation Council (GCC) region, utilizing the UN TIR system to bypass blocked maritime routes.

Furthermore, the digitalization of trade processes, including the implementation of eTIR, holds immense potential to streamline transit operations and enhance trade security and efficiency. By eliminating paper-based processes and facilitating intermodal transport, eTIR aims to optimize trade operations and minimize data duplication.

As global trade routes continue to evolve, investments in both physical infrastructure and digitalization efforts are essential to ensure the resilience and efficiency of these corridors. Harmonized development tools and digitalization initiatives will be crucial in supporting the growth of emerging trade routes and safeguarding global trade against future crises.

The pursuit of efficient and resilient global trade routes requires collaboration and coordination among stakeholders, with a focus on leveraging technological advancements to overcome challenges and seize opportunities in an ever-changing global landscape.

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Global Trade Daily, International Trade

Red Sea Global Trade Disruptions: How to Overcome the Chaos

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Global trade has faced many recent disruptions lately due to chaos in the Red Sea, which started as a result of the attacks in Gaza. According to the Council on Foreign Relations, about 6% of global trade and 40% of U.S. container ships traverse the Panama Canal yearly. Per the U.S. Naval Institute, 12% of global trade travels the Suez Canal.

The Houthis, a religious movement, began carrying out attacks on cargo ships traveling through the Red Sea and the Suez Canal in November 2023. Vessels are avoiding these attacks in the vital waterway by sailing around Africa, adding time and cost to the trip. 

Perishable items are shipped in containers, but some items are switched to bulk carriers, which may make these items harder to handle at ports. Plus, container prices have risen by 25% or more. Perishable items have a limited life, so the lengthier shipping times can ruin them and make them unsellable. 

Ocean shipping rates are going up, and several carriers have added surcharges. Shipments are delayed, meaning orders may be canceled as customers become unhappy with shipping times. 

The Panama Canal, which could have been an alternative to the Suez Canal, is also experiencing cargo diversions because of the lack of rain, making the canal too shallow for large ocean liners. Authorities expect the canal will limit capacity to 18 slots per day, down from the pre-drought capacity of 30 ships. 

Significant challenges for international trade include: 

  • Restricted bookings on westbound routes have triggered a surge in freight rates, affecting regions in the Middle East, the Red Sea, North Africa, Europe, the East, the Black Sea, and the West.
  • Freight rates have seen a significant spike, with Asia-Europe rates surging 173%, exceeding $4,000/FEU compared to pre-diversion levels. Asia-Mediterranean prices have doubled, exceeding $5,000/FEU.
  • Carriers have introduced surcharges ranging from $500 to $2,700 per container, further driving prices higher. The FMC granted permissions for carriers to circumvent the 30-day notice for increasing rates, allowing them to bill surcharges immediately. 
  • Disruptions in one region can influence distant markets. Several EU-based auto plants have announced temporary production shutdowns due to delays in obtaining parts from Asia. 
  • Due to Panama Canal congestion, a route initially diverted to the Suez Canal will go towards the Cape of Good Hope, adding ten to fourteen days to the journey and extra costs. Shippers now face a dilemma between bypassing the Cape of Good Hope or returning to the Panama Canal with potential queuing delays.
  • Sea-Intelligence estimates a 5.1%-6% reduction in global shipping capacity, equivalent to 1.45-1.7 million TEU.
  • Companies may need to increase ship numbers on each route to maintain schedules.
  • The crisis prompts strategic reshuffling, reminiscent of past trends redirecting ships from European to U.S. routes during surges in freight prices.
  • The crisis could extend into the second half of 2024. The longer the war in Gaza lasts, the more extended shipping disruptions caused by missile attacks in the Red Sea will continue. 
  • Retailers that rely on sea freight could be more affected by the Red Sea disruption than those that source closer to home. Retailers may see longer lead times for specific products as the Red Sea situation continues. 

How to make global shipments happen

Shippers need to find alternative routes to make sure shipments happen. Routes bypassing the Red Sea might be longer but would avoid the crisis zone. Shippers must implement enhanced security measures for vessels, such as hiring private security firms or coordinating with naval forces for escorts. 

Shippers must be flexible as they navigate higher costs, longer transit times, and economic volatility. When risks like this occur, the ability to mitigate risks and deliver to customers is critical. Diversifying the supply chain to reduce reliance on routes passing through the Red Sea can mitigate the impact of disruptions in the region. Shippers must review insurance policies and risk management strategies to ensure coverage for potential regional disruptions. 

Supply chain networks may need to be redesigned with alternate logistics partners, sources, and suppliers. A supply chain network optimization solution answers “what if” scenarios to improve customer service, operational efficiency, inventory management, risk mitigation, and supply chain resilience. Supply chain network optimization solutions use data from across the supply chain to create a mathematical model representing the entire supply chain network. The model considers various constraints, objectives, and decision variables, including facility locations, transportation routes, inventory levels, and production capacities.

The Red Sea crisis is a wake-up call for companies to localize their supply chains. Shippers should have alternative sources of raw materials so they don’t have to rely on a single source for raw materials, which can make the supply chain vulnerable to disruptions. Having multiple sources allows shippers to negotiate better prices and hedge against sudden price increases from a single supplier. Because of the instability of the times, the availability of raw materials can be affected. 

Utilizing technology, such as tracking devices, predictive analytics, and communication systems, can help shippers better navigate high-risk areas and respond effectively to incidents. 

Seizing Opportunities Amid Uncertainties

  • The looming strike threat in the Eastern United States could expedite the return of cargo volume to the US-West Terminal.
  • Large importers may consider advanced shipment plans or opt for the West Coast route to mitigate potential strike risks.

Circumventing the crisis in the Red Sea requires careful planning, agility in your supply chain, and partnerships with logistics providers that can ensure shipments are shipped on time to the correct location. 

source: https://www.nexterus.com/

 

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Global Logistics, Global Trade Daily, International Trade, News

How The Red Sea Disruption Is Affecting Industry

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With several big shipping companies diverting their routes away from the Red Sea due to current conflicts, the delivery of shipping containers and consumer goods is taking longer than usual.

As a result of the ongoing Israel-Hamas war, the Houthi group in Yemen – who is openly backing Hamas – has said it is attacking all ships heading towards Israel. However, it is unclear whether all the targeted vessels are actually travelling to Israel, meaning many shipping firms have opted to avoid the busy shipping lane altogether.

In fact, over the past few months, a number of Maersk and MSC container ships have been assaulted by Houthi rebels, which has reinforced the importance for shipping companies to map out alternative routes for the security of their crew members and container cargo.

So, what does this mean for businesses awaiting commercial deliveries? Cleveland Containers, one of the UK’s leading suppliers of shipping containers, explains how the Red Sea disruptions are affecting industries across the country.

What is happening in the Red Sea?

Since the beginning of the Israel-Hames conflict in October, Houthi rebels have been launching rockets and drones against foreign-owned ships navigating through the strait of Bab al-Mandab. This is a 20-mile wide channel separating Yemen on the Arabian Peninsula side and Eritrea and Djibouti on the east African coast.

Andrew Thompson, Chief Executive Officer of the Cleveland Group, which consists of Cleveland Containers, Cleveland Hire and Cleveland Modular, said, “Generally, ships enter the strait of Bab al-Mandab from the south to cross the Red Sea and reach the Mediterranean via Egypt’s Suez Canal.

“But the threat of potential attacks has forced global shipping firms to amend their itineraries, with vessels now cruising around the Cape of Good Hope (South Africa) and then all the way up the west side of the continent.

“This is causing severe delays to shipping deliveries, as the alternative route can extend transit times to at least two or three weeks. And, in turn, the delays are also having a knock-on effect on the operations of sectors and companies all over the UK, impacting stock availability and delivery pricing.”

What sector is being affected the most?

Many sectors, such as retail and construction, are being significantly affected by the Red Sea disruptions, as companies deal with supply chain logjams due to the rerouting of deliveries.

Manufacturing is no doubt one of the industries that has to tackle the harsh consequences of the ongoing situation, too. For example, at the start of 2024, big automakers such as Volvo, Tesla, and Suzuki had to suspend some production across Europe because of shortages in components.

In particular, the UK manufacturing sector has witnessed a decline in operations in recent times, and the Red Sea problems have contributed to hindering the situation even further. As of January 2024, its purchasing managers’ index (PMI) stood at 47.0, with any reading below 50 indicating a contraction.

The current delays are prolonging expected deliveries, causing disruptions to production schedules and increasing financial pressures at a time when companies are already struggling to make ends meet.

The additional costs behind the Red Sea disruptions

The ongoing disruption in the Red Sea means that the cost of delivering goods worldwide is increasing, too.

The forced change in route has increased sailing times by 30%, leading to a rise in fuel consumption and extended work shifts for ship crews.

Not to mention that shipping companies are facing additional port fees as vessels need to stop more often along the way, as well as higher freight expenses overall.

So, ultimately, this is why businesses across the UK are currently having to spend more money on the delivery of products, items, and materials to keep their operations going.

It is also worth noting that the delays of goods leaving China and other parts of the world are escalating demand and impacting availability. Some sectors might be experiencing significant stocking issues, whereas others may not have the materials they need to fuel their industrial processes.

In short, the Red Sea disruptions are causing a slowdown in production, resulting in lower output and an overall loss in revenue for companies all over the country.

As things stand, the threat of Houthi attacks on vessels in the Red Sea is setting back transit times, increasing shipping costs, and putting the financial wellbeing of several sectors to the test.

While it is difficult to make predictions at this stage, the hope is that the situation will ease over the coming months to restore some sort of normality worldwide.

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Global Logistics, Global Trade Daily

Global Shipping’s Headaches – a Drought and Rocket Fire 

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Problems in the Suez and Panama canals continue to drive up delivery costs and exacerbate shipping delays. The Suez Canal is embroiled in a geopolitical mess, with the Yemen-based Houthi rebels attacking vessels in reaction to the war in Gaza. Meanwhile, the Panama Canal’s setbacks are climate-based, where a drought has meant less water to feed the canal’s intricate system of locks that enable ships to cross through the waterway. 

Both issues have resulted in increased shipping costs and lengthy delays. Despite being minor hiccups compared to the bottlenecks produced by Covid in 2020 and 2021, many operators are warning of elevated consumer prices should the difficulties continue. 

In terms of solutions, minimizing Houthi attacks is undoubtedly doable. US coalition retaliatory strikes have eliminated up to a third of the rebel outfit’s assets. The Panama Canal, on the other hand, is in the midst of one of the worst droughts since it became operational. The drought began in mid-2023, and some estimates point to more rainfall come the end of May 2024. 

Roughly 18% of global trade volume passed through the two canals in 2023. Volvo and Tesla already halted vehicle production for two weeks in January due to parts shortages. Many apparel companies are turning to air delivery to ensure spring fashions arrive on time. In 2020 and 2021, shippers passed higher costs to consumers, fomenting inflation across an expansive basket of goods.

During the height of the pandemic, daily freight routes between the US and Asia skyrocketed by nearly five times to over $20,000 per box. Today, Suez interference has resulted in average sailing times lengthening by approximately ten days. Most businesses learned a valuable lesson from the pandemic and built up their inventories to mitigate the risk of running out of goods. Well-stocked warehouses, however, might be the only reason consumers do not feel a bigger effect, and those warehouses cannot remain well-stocked for long.

Approximately 14% of seaborne trade to and from the US comes through the Panama Canal. In normal conditions, the canal handles in the neighborhood of 36 ships crossings daily. That figure fell to 24 in November 2023 and has plummeted further, although some recent rainfall has helped. A crossing typically costs $500,000 per ship, but some desperate operators now pay up to $4 million. 

Hapag-Lloyd, Maersk, and a handful of other large carriers have yet to return to the Red Sea. Others are paying private security to guard against rebel attacks, and Suez toll revenue predictably plummeted by nearly half – $804 million in January 2023 to $428 million in 2024.

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Global Logistics, Global Trade Daily, News, Ocean Ports

China-US Container Leasing Rates Rise Threefold, Container Demand Recovery on the Horizon

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The global shipping industry experienced a significant surge in rates over the past couple of months, as an aftermath of the Red Sea crisis. Three months into this crisis, container leasing rates on the China-US trade route have surged dramatically, rising by a staggering 223%, or threefold, compared to pre-incident levels. Additionally, demand for containers is expected to recover in the coming months as the US economy exhibits signs of resilience. 

The U.S. economy has exhibited resilience, with GDP rising at a 3.3% annual rate in the fourth quarter of 2023. This growth was fuelled by gains in consumer spending, non-residential fixed investment, exports, and government spending, among other factors. Furthermore, December’s personal income and spending reports reflected lower inflation and solid household spending, contributing to a positive economic outlook. 

Despite economic concerns, China is experiencing a surge in demand for ocean container freight to the United States.

“The gains in consumer spending and retail sales figures suggest that our industry can expect decent demand recovery for goods, which translates into relatively higher container demand on the cards, as retailers restock inventory and fulfil consumer orders.” added Roeloffs. 

According to the Port of Los Angeles’ PortOptimizer, Week 6 TEU volumes were up 38.6% compared to the same week in 2023 (105,076 TEUs vs. 75,801 TEUs). 

One of the industry participant from a global logistics and freight forwarding company from California, United States shared with Container xChange as part of response to our regular polls around container price sentiment, “As attacks on cargo ships in the Middle East continue and vessels are rerouted around southern Africa, we anticipate equipment shortages due to the lack of container repositioning in Asia for eastbound goods. Furthermore, disruptions in the Suez, Red Sea passage, and Panama Canal will likely lead to increased demand for routing through the West Coast. Many importers are already rerouting cargo via West Coast transloading and trucking across to the coast, adding pressure on railways and domestic carriers. We advise all clients to provide advanced forecasting, considering all routing options proactively, and determining the best course of action based on cargo readiness dates and required on-site dates.”

Another industry professional, a sales representative at a freight forwarding company in the US shared, “Our overseas offices have been reporting massive rate spikes, surging almost to COVID crisis-levels. I wouldn’t be surprised if those levels are reached by the middle of Q2.” 

While the prospects of better container demand in the rest of the year have improved, shippers are struggling with issues like container crunch in China, and 3X leasing rates on key trade routes. 

The price hike was especially pronounced on routes Ex China to key destinations like New York, NY and Los Angeles, CA in the United States. (See table below). To gain deeper insights into the cyclical fluctuations of container leasing rates that could have led by the pre-Chinese New Year surge, we conducted a comparative analysis with last year’s leasing rates in February 2023. Our findings reveal a stark contrast, as the magnitude of the current hike was not observed during the same period in February 2023.

* Note: Prices are rounded to the nearest dollar.

Table 1: Comparison of Container leasing rates (in dollars) Ex China to US East Coast and US West Coast Trade Routes: November 2023, February 2023, and February 2024 by Container xChange, an online container logistics platform for container trading and selling

The significant spikes in shipping rates over the last three months signal a notable shift in the supply-demand dynamics, with demand recovery and capacity being increasingly tied up as the transit times via the cape of good hope increase by 2 –3 weeks. While the pre-Chinese New Year surge contributed, it was the disruptions caused by the Red Sea rerouting that served as the primary catalyst for the shooting up of leasing rates for containers.” explained Christian Reoloffs, co-founder, and CEO of Container xChange.

Post Chinese New Year Freight rates expectation 

“Freight rates were somewhere around $2000 back in February 2023, last year. This year in 2024, these are at $3392 as on 9 February 2024. These prices last year continued to decline after the Chinese New Year by around 30% until March 2023. If we follow the cyclic trend, then a decline of a similar magnitude in the current freight rates will lead to the prices crashing from $3393 as on 2 February 2024 to $2300 in the coming weeks.” shared Christian Reoloffs, cofounder and CEO of Container xChange, an online container logistics platform for container trading and leasing. 

On the China to North America east Coast trade route, freight rates doubled between 15 December 2023 to 19 January 2024, (from around $2500 to roughly $5000). 

Shipping lines and carriers may benefit from higher leasing rates in the short term. However, in the long run, if these elevated costs are maintained, it can increase the cost of exporting goods, potentially squeezing profit margins for manufacturers and exporters. They may need to pass these increased costs onto consumers, leading to higher prices for imported goods.

Container Leasing Rates on China-US trade route

The chart below illustrates a sharp increase in leasing rates from China to the West Coast ports of the United States, particularly Los Angeles and Long Beach, in 2024. In December 2023, prices ranged from $280 to $776 for Los Angeles and $370 to $710 for Long Beach.

However, prices surged in January 2024, with rates to Los Angeles ranging from $740 to $920 and to Long Beach from $700 to $920. This trend continued into February 2024, with rates to Los Angeles reaching $1070 to $1230.

Chart 1: Average One-way leasing rates Ex China to USWC ports

Chart 2: Average One-way leasing rates Ex China to USEC ports

Prices for shipping containers from China to New York and Savannah, GA ranged from $400 to $820 and $590 to $1043, respectively, in September to December 2023. In January, prices rose notably, with rates to New York ranging from $608 to $1008 and to Savannah from $706 to $733. Prices continued to rise in February, with rates to New York reaching $1290 to $1730.

China to New York rates more than doubled from December 2023 to February 2024, while rates for shipping containers to Los Angeles increased by nearly $435 during the same period.

To read similar analysis, reports and indices, visit Container xChange’s Market Intelligence hub