Containers: The miracles

It is a matter of some amazement to many observers that the container freight market has not collapsed since Donald Trump’s Liberation Day announcement on April 2. Six weeks later, the Freightos global average 40 foot container freight rate stands at $2,237 points, some 10% higher than $2,031 on April 4. After Mr Trump’s offer to “be nice” to China and the reduction of tariffs from over 140% to 30% (still triple their level on March 31), Chinese exporters have rushed to move product to the US as buyers there seek to use this tariff arb window to recharge inventory.

Carriers have taken their opportunity to hike freight rates on their trans-Pacific services. The rate for a 40’ box from Shanghai to Los Angeles was up 14% on the week and up 20% over four weeks on May 23, at $2,788 – still way down on the post-Covid peak of $8,101 in July last year but a comfortable average for a ship carrying 14,000 TEU (the twenty foot rate can be around 65 to 80 per cent of the forty foot rate).

On the all-water service to the US East coast, as of May 23 rates were up 20% weekly and 24% over four weeks at $4,233. Again, this is well of the peak of $9,480 recorded in early August last year but comparably as profitable as the rate to Los Angeles, taking Panama Can fees into account.

Some observers think that these higher rates are only partly a function of a short term spike in demand; they also reflect a “brutal” reduction of up to 45% of capacity which can be reversed. Peter Sand of Xeneta put it thus: “it does take time to shift capacity back to the China-US trades, so spot rates will peak in the first half of June before softening later in the month.” In other words, peak season will come earlier than ever this year, during the 90 day tariff window, compared to being in July and August in the last few years.

The danger for the latter part of the year is that tariff costs, being passed on to US buyers, cause a rise in inflation, followed by a rise in interest rates causing a recession, which would dampen demand and surely lead to more supply management from the carriers and potentially another hard fall in freight rates. Planning for such contingencies becomes more important than forecasting the rates themselves, as the sensitivity to US political chaos is unmanageable.

Traffic through the Suez Canal and the Red Sea remains light even after Mr Trump and the Houthi declared a cease-fire, as the latter party still object to Israeli actions in Gaza and thus still threaten any passing vessels that they consider are related to Israel. Rates from Asia to the Med were flat on the week at $2,985, though up 2% over four weeks. Rates from Asia to Northwest Europe remained little altered as of May 23 at $2,351 per FEU, down 4% on the week but unchanged over four weeks.

In the Atlantic, westbound rates fell 10% in mid-May after being unchanged since late January. They stay at their new level of $1,926 per day, though the ratcheting of tariff rhetoric between the US and EU could yet cause the bringing forward of imports to the US much as has occurred on trans-Pacific trade. On the reverse route, from the US to Europe, rates are up 6% on the week and up 20% over four weeks at $512 per FEU, after 11 weeks of falls, suggesting that the early shipping theory holds some water.