Falling global container rates could signal overcapacity

Global container rates fell sharply due to weak demand after the Lunar New Year, combined with the impact of new shipping alliances and overcapacity, putting huge pressure on the shipping market.

container shipping

Container shipping. Photo: Freepik/Phaata

Container shipping rates from Asia continued to decline last week, falling to their lowest level since 2024 due to a combination of weak demand after the Lunar New Year, the impact of new shipping alliance services, and fleet capacity growth.

Asia-Europe rates fell 11% to $2,740 per FEU, 14% below their 2024 low. Meanwhile, Asia-Mediterranean rates fell 9% to below $3,800 per FEU, 10% below their lowest level last year.

The post-Lunar New Year demand slowdown on these trades could be more severe than usual, as shippers stock up ahead of the holiday to offset the longer transit times associated with the Red Sea detour. However, freight rates have remained depressed despite congestion at many European ports. Several carriers announced surcharge increases (GRIs) in April, but most of the March rate hikes have been unsuccessful.

Trans-Pacific Market: Temporary Growth, Long-Term Pressure

There are signs of temporary demand growth on the trans-Pacific trade as orders are frontloaded to avoid new tariffs. However, if tariffs are implemented or inventories build up, the frontloading will end, potentially leading to a weaker-than-normal second half.

The tariff outlook remains highly uncertain, with a number of factors that could impact seaborne trade:

• Potential for a sharp increase in tariffs on Chinese goods.
• Retaliatory tariffs from multiple countries.
• USTR’s proposed port fees for China-based vessels.
• The reinstatement of a 25% tariff on all imports from Canada and Mexico, expected in early April.

Meanwhile, the US Federal Maritime Commission (FMC) has opened an investigation into the role of foreign governments in causing container congestion.

Signs of excess capacity begin to emerge

Despite relatively strong demand, trans-Pacific freight rates continued to decline over the past week.

Currently, US West Coast freight rates are around $2,400/FEU, while East Coast freight rates are $3,500/FEU, 18% below their 2024 lows.

In addition to the impact of the restructuring of shipping alliances, the weakening of freight rates on these routes may reflect excess capacity due to rapid fleet growth. This phenomenon, which was expected to cause a price collapse in 2023, has been somewhat contained since early last year as the diversion of traffic around the Red Sea has reduced vessel capacity.

However, if demand falls sharply as frontloading orders end, and given that global average rates are still 70% higher than in 2019 due to the Red Sea crisis, the market could be left with excess capacity even if the route around Africa continues. This is reflected in the trend of transpacific contract negotiations settling at lower rates than carriers expect.

Air Freight Market Developments

In the air freight sector, the Freightos Air Index recorded a slight recovery in freight rates from China last week:

• China – US: above USD 5.00/kg.
• China – Europe: above USD 3.80/kg.

However, there are signs that e-commerce demand to North America is slowing.

On the transatlantic route, freight rates reached $2.43/kg, up 15% from the beginning of the year. This may be related to pre-ordering to avoid tariff increases on imports from Europe to the US.

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