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07 30 2024
Why Sea Freight Is Increasing In Mid Of 2024? |Aquasky

WHY SEA FREIGHT IS INCREASING IN MID OF 2024?

 

1. Overview of the Current Ocean Freight Cost Situation

Sea freight is a crucial component of global trade, carrying over 80 percent of the world’s goods. As of mid-2024, have seen a significant spike in sea freight rates from Asia, with prices continuing to rise. This surge in container shipping rates has dramatically impacted global trade, leading to substantial economic repercussions for businesses and consumers alike.

The Index, which includes eight route-specific indices and a composite index, all reported in U.S. dollars per 40-foot container, highlights the dramatic fluctuations in container freight rates between January 2023 and March 2024. The lowest rate was recorded on October 26, 2023, at just 1,342 U.S. dollars per 40-foot container. However, since that time, global freight rates have steadily increased, reaching a record high of over 4,200 U.S. dollars in May 2024. This rise reflects broader disruptions and systemic issues within global supply chains, further exacerbated by a 9.2% increase in market demand in the first quarter (Q1) of 2024 compared to the same period in 2023.

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Between the start of April and mid May, spot rates have risen significantly: from the Far East to North Europe by 30%, the US West Coast by 30%, the Mediterranean by 22%, and the US East Coast by 21%. Analysts predict that rates to Europe, currently between $6,000 and $7,500, may reach $10,000. This escalation in shipping costs has created market turmoil, with spot rates to Europe increasing by 6% in the previous week alone.

This rise in shipping costs can be attributed to various factors, including rising fuel prices, supply chain disruptions, and increased demand for transportation services. To understand the situation more comprehensively, it is essential to delve into the specific causes behind these factors and how they collectively contribute to the surge in freight rates.

 

2. Key Reasons for the Increase in Sea Freight Costs

2.1. Geopolitical Tensions in the Red Sea

The Asia-Europe shipping route, one of the world’s major trade routes, has been significantly affected by geopolitical instability around the Red Sea. Heightened regional conflicts, particularly the Houthi attacks on commercial vessels, have forced shipping companies to reroute vessels to longer, safer paths. The Houthis, supported by Iran, have been targeting foreign-owned ships, especially those perceived to be heading to Israel, using drones and rockets in the Bab al-Mandab strait. In response, US and UK naval forces have launched air strikes against Houthi targets in Yemen to protect these vital shipping lanes.

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To avoid these dangers, major shipping firms such as Mediterranean Shipping Company and Maersk have diverted their vessels around Africa's Cape of Good Hope. This detour has significantly increased transit times by more than 15%, adding at least 10 days to the journey from Asia to Europe. The extended route also leads to increased fuel consumption and operational costs, further inflating shipping expenses. Freight costs to major European ports like Felixstowe, Hamburg, Rotterdam, and Antwerp have more than doubled.

This situation has created a 10-15% capacity gap on the this critical route, severely impacting global supply chains and contributing to the surge in freight rates. The longer journeys not only extend shipping times but also cost companies millions of dollars, adding to the overall rise in sea freight costs.

2.2. US Sanctions on Chinese Imports

US sanctions on Chinese imports have disrupted trade flows and global supply chains, contributing to the volatility of shipping rates. These measures aim to curb China's technological advancements and limit its military capabilities by restricting access to advanced technologies such as semiconductors and supercomputing items, preventing their use in military applications. Additionally, many Chinese firms, including major tech companies like Huawei and ZTE, have been added to the US Entity List, restricting American businesses from selling to these Chinese firms.

The U.S. election has been claiming future tariffs of 50%-60% on Chinese cargo, The tariffs imposed on Chinese goods have made importing these products more expensive. To mitigate these costs, some companies have shifted their supply chains to other regions, such as South America. As Chinese companies increase their investments in South America to circumvent US tariffs, there is a heightened demand for shipping resources on these routes. This shift strains global shipping capacity, driving up freight rates due to the limited availability of shipping resources. (The Diplomat) (China Briefing).

Currently, The cost of shipping from major Chinese ports to the US has seen a substantial rise. For instance, shipping a 40HQ container from China to Los Angeles now costs around $5,500-$6,500, while to New York, it ranges from $7,000-$8,500. This is a direct result of increased tariffs and the need to navigate more complex trade routes.

2.3. Congestion at the Port of Singapore

Recent months have seen significant congestion at the Port of Singapore, the world’s second-largest port. This congestion has led to increased shipping times and higher freight costs, affecting trade within Asia as well as between Asia, Europe, and the Americas. Key factors contributing to this congestion include a substantial rise in container volumes, with nearly an 8% increase in the first five months of 2024 compared to 2023. This surge has pushed the port's utilization rate to nearly 90%, causing productivity declines due to overcrowding.

Schedule reliability is still far from pre-pandemic levels, with Q1 on-time performance at just 27%. This, combined with congestion, port omissions, delays, and missed departures, has severely impacted equipment availability at export hubs.

Additionally, the crisis in the Red Sea has forced ships to detour around Africa’s Cape of Good Hope, adding time and fuel costs. These disruptions have led to off-schedule arrivals in Asia, worsening congestion at major hubs like Singapore. Extended wait times have also become a significant issue, with ships now waiting up to seven days for a berth compared to the usual half-day. Delays have caused shortages of containers and essential equipment, as ships remain in port longer than scheduled, complicating logistics and driving up costs. Furthermore, US sanctions and tariffs on Chinese goods have led to a rush in shipping ahead of trade curbs, adding to the volume and congestion. These factors collectively strain the port’s capacity, driving up freight rates and impacting global supply chains. (Maritime Executive) (CNA) (KWE)

 

3. Impact on Businesses and Consumers

The significant increase in freight transportation costs has profound implications for both businesses and consumers. Companies that rely on shipping goods are now facing higher operational costs, forcing many to reassess their pricing strategies, absorb added expenses, or pass them on to consumers. This results in higher prices for products and services, affecting consumer purchasing power and overall economic stability. Rapidly rising freight costs can disrupt capital chains, especially if buyers expected lower shipping costs when placing orders, leading to abandoned orders and potential bankruptcies.

For sellers, the impact is equally severe. Sellers with CNF (Cost and Freight) orders face higher shipping costs, reducing profits or even resulting in losses. For FOB (Free On Board) orders, buyers might delay shipping due to high freight rates, causing cash flow issues for sellers. End customers may see higher prices and possibly reduced product quality as businesses adjust to increased shipping expenses. This dynamic creates a ripple effect throughout the supply chain, influencing market stability and economic health.

To cope with rising shipping costs, businesses need strategic responses. Buyers should consider waiting for rates to stabilize if goods are not seasonal or urgent, and maintain communication with freight forwarders to stay updated on rate changes and cargo availability. Sellers should focus on cash flow management, maintaining close communication with freight forwarders and customers to manage expectations and avoid surprises. Freight forwarders must ensure timely payment and inform customers promptly about port congestion and rapid changes in freight rates to prevent abandoned goods. By staying informed and proactive, companies can navigate the complexities of the global supply chain and mitigate the adverse effects of rising shipping costs.

 

4. Conclusion

In summary, the recent increase in sea freight costs can be attributed to geopolitical tensions, particularly in the Red Sea, US sanctions on Chinese imports, and significant congestion at key ports like Singapore. These disruptions have led to longer transit times, increased operational costs, and strained global shipping capacity, driving up freight rates.

Facing rising freight rates requires buyers, sellers, and freight forwarders to work closely and adapt strategies to changing market conditions. As an exporter of pressure tanks, Aquasky is committed to providing comprehensive sea freight services and maintaining close communication with clients. We promptly provide updates on freight rates and shipping space to help our clients navigate these challenging times.

If you have any questions about the shipping costs for Aquasky pressure tanks, please contact our service representatives at [email protected] or [email protected] . We are here to support you through these changes and ensure the efficient and reliable delivery of your goods.

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