Drewry's World Container Index has increased for the second week in a row. The rise in rates for transpacific shipments has outweighed the drop in rates for Asia-Europe trades as shipping companies manage their capacity due to ongoing supply chain issues.
The Drewry World Container Index went up 1% to $4,339 for a 40-foot container, mainly due to higher shipping rates to the U.S. The cost of shipping from Shanghai to New York surged 10% to $8,706, while rates from Shanghai to Los Angeles rose by 6% to $6,244.
Shipping companies are actively reducing capacity through canceled sailings. In the last two weeks, they canceled 10 sailings each week and plan to cancel another seven next week. Drewry expects this tighter capacity will help stabilize rates in the upcoming week.
On Asia-Europe routes, however, the situation is less favorable. The cost from Shanghai to Genoa dropped 8% to $5,080 for a 40-foot container, and the rate from Shanghai to Rotterdam fell 5% to $4,425. Carriers announced new freight-all-kinds rates ranging from $6,700 to $7,100 for Asia-Mediterranean routes starting August 15, but Drewry mentioned that decreasing demand raises doubts about whether these rates will be sustained.
The wider east-west shipping market continues to face issues due to security concerns around the Suez Canal and Strait of Hormuz, restrictions in the Panama Canal, congestion at Asian ports caused by Typhoon Dolphin, and extremely low water levels in the Rhine River.
Additionally, the freight rate benchmarking company Xeneta reported that nearly six months of disruptions in the Middle East are beginning to impact long-term shipping contracts.
“The effects of nearly half a year of disruptions due to the conflict in the Middle East are now affecting long-term contracts,” stated Peter Sand, Chief Analyst at Xeneta.
Since late February, Xeneta reports that long-term shipping rates from the Far East to both the U.S. West Coast and East Coast have increased by 41% and 40%, respectively. Rates for shipments to Northern Europe are up 41%, while Mediterranean contracts have risen by 17%.
However, these increases are still much lower than the spikes seen in the spot market. Xeneta notes that spot rates from the Far East to the U.S. West Coast are currently 271% higher than pre-crisis levels, and rates to the U.S. East Coast have jumped by 287%.
This growing gap has enhanced the negotiating power of shipping companies in contract discussions. For the Far East to U.S. West Coast trade, spot rates are now $4,103 per FEU higher than long-term rates, according to Xeneta.
“This is the extended financial impact of supply chain disruptions,” Sand warned, advising shippers to be cautious about committing to long-term contracts in a rising market. He suggested opting for shorter agreements that secure capacity while allowing rates to adjust based on spot market movements.