Bill Smith

Why are ocean container rates rising? Taking a closer look

HIGH POINT – In March and April, getting a container from China to the U.S. West Coast cost somewhere in the $3,000 range. Getting one to the East Coast cost around $3,500. But starting in May, carriers began to raise spot rates bi-weekly, totaling out to a $4,000 increase so far to both coasts. On July 1, another $1,000 increase is expected.

The reasons for the increase seem to stem from a host of factors, most notably being an early peak season and the ongoing Red Sea situation.

Bill Smith

“Retail and business are better than projected,” said Bill Smith, president freight forwarder and logistics provider CV International. “It might not be the case for furniture, but it is in other sectors.

“Another thing is with the Red Sea and Suez Canal being effectively closed. Very few container operators are willing to ship their vessels through there. The majority have rerouted around Africa, which soaks up a lot of the extra capacity that was added to the market.”

Since December or so of last year, ocean carriers have largely avoided the key shipping route of the Red Sea and Suez Canal, as Yemen’s Houthi militants began attacking certain container ships traveling the route. They began rerouting those ships around the horn of Africa instead, which adds around 14 extra days to a ship’s journey.

At the same time, a months-long drought was underway at the Panama Canal, which initially had provoked carriers to redirect freight over to the Suez, only for that freight to be diverted again by the Red Sea conflict. The drought eased somewhat as of early May, but fully normal operations aren’t expected until 2025.

Both events seemed to have soaked up much of extra ships and capacity that were added to the market following the pandemic, as Smith said. Now, equipment is tough to get.

Rachel Shames
Rachel Shames

“Space and equipment are difficult to come by, even at spot-level pricing,” said Rachel Shames, vice president of pricing and procurement at CV International. “Vessels to the U.S. are booked up at least four weeks ahead of sailing; most carriers are requiring bookings five to six weeks in advance. Even with a booking in-hand at spot levels, rollovers are very common.

“Some ocean carriers have brought back the super-premium pricing tier that guarantees cargo will be loaded on the required vessel in exchange for rates priced thousands of dollars above the spot market level. Equipment challenges persist, especially at the ports of North China.”

There’s also a belief that carriers are manipulating the situation to drive prices further. Contract rates, for one, aren’t being honored, says Smith.

“It’s extremely unfortunate,” he said. “We contract a large percentage of volume on fixed rates, and those rates aren’t being honored. Those are levels that are supposedly locked in when freight was a lot lower. How they can do that is the big question. I’m sure there will be protests lodged with the FMC, but will they help, I don’t know. Carriers may be prioritizing more expensive spot freight and putting lower contracted on hold.”

Smith also said that “blank sailings” – or a carrier opting to delay a ship for a week – are still ongoing.

“Carriers will still blank sail even in the midst of all this,” he said. “The vessels are pretty much full, but if they see a week where there’s a gap, they won’t sail it and they’ll wait until next week.”

Ken Shanks, president of sourcing expertise provider Outlook International, advises importers to book as far out as they can.

Ken Shanks

“I’m seeing rates as high as $7,000 out of Vietnam, but it’s not that high if you book well enough in advance,” he said. “Most of our customers are getting in the $5,000 range.

“We’ve asked factories to book eight weeks ahead. That’s longer than the typical cutting cycle, and that can cause problems if you guess wrong and with stuff not being ready in time.”

Shames also advocates for earlier planning.

“The market challenges we face are reminiscent of the pandemic era, and supply chain planning has become more costly and difficult than any other time in the last two years,” she said. “Shippers should continue to place bookings early, at least five to six weeks in advance, regardless of rate level, and leave ample time for delays in transit. All signs point to the situation getting worse before it gets better, unfortunately.”

Adding to the headache is the threat of a strike at ports on the East Coast. Around 85,000 dockworkers see their labor contracts expire Oct. 1. A successful renegotiation has yet to take place, with talks breaking down last week over the issue of port automation.

See also:

  • A COVID redux? Furniture importers sound alarm on rising container rates
  • Panama Canal drought improves, but will it affect ocean rates?
  • Flexsteel adds freight surcharge as ocean container rates keep rising

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