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Container freight rates boom post COVID-19 brings idle ships to historical record lows

This article examines recent progress and initiatives by the shipping industry to meet new IMO targets and provides Signal Ocean Platform data on emissions developments and trends.

The Signal Group
March 17, 2024

As the world economy struggles to recover from the worst financial crisis since the Great Depression, the container freight market is bouncing back quickly from an initial slowdown. Combined effects of strong shipping demand, global shortage of containers, limited capacity of ships and port congestion underline the main drivers for the upswing of current sentiment.

Demand

Demand fundamentals started to turn positive during the second half of 2020 as container transportation picked up considerably, exceeding supply capacities. This boom was mainly caused by lockdowns, seeing a lot more people working from home and spending less on travel or services. In the United States, greater spending on personal protection equipment and home electronics because of the coronavirus caused containerised imports from Asia to jump by about 30% compared to the previous year, according to PIERS, the US trade reporting service compiled by IHS Markit. The sharp rise in export volumes from Asia and decline in shipments from the rest of the world has skewed global trade flows, causing bottlenecks at ports, supporting the upward market sentiment.

Supply 

Increased demand, combined with port congestion associated with covid restrictions, had a direct impact on vessel supply.  Port congestion, at the moment, is a big challenge for shippers. There is an emerging threat for more bottlenecks in the logistics supply chain and cargo flow from Asia to Europe or North America due to Malaysia’s potential lockdown amid a new wave of the pandemic. The Port of Yantian is partially closed because of a COVID-19 outbreak, and Hamburg is now badly afflicted by congestion.

In addition to the COVID-19 related ports congestion, when the Ever Given megaship blocked the traffic in the Suez Canal for almost a week in March, it also had a direct impact on vessel availability and therefore supply. Although the ports were able to clean up some of the backlogs during the calmer period when container ships were not able to arrive, many ships arrived at the port all at once in April, which led to longer waiting time, aggravating the market situation that was already under pressure. The graph belows shows the direct impact on vessel supply during the last couple of months compared to last year looking at the number of idle vessels.

Chart 1: The Signal Ocean data fused with commercial data by Blue Net Chartering show the number of idle container ships from feeders up to the largest container vessels (1000-25000 TEU)

Impact on Freight 

Supply & Demand fundamentals had a direct impact on Freight rates. The Ningbo Container Freight Index, compiled by the Ningbo Shipping Exchange and promoted by the Baltic Exchange, reflects the fluctuation of freight rates of the international container shipping market by calculating and recording the changes of container freight rates of 21 routes departing from Ningbo-Zhoushan port, including composite index and 21 individual indices. 

On 26 March 2021, the Freightos Baltic Index (FBX) stood at $2,174 per FEU, and by 7 May rates had increased 65% to $3,596 per FEU. Rate levels continue to surge with the FBX composite index going above the $5,000 level towards the end of May ending at a new high of $5,230/FEU. This is remarkably high compared to a pre-pandemic level below $1,400/FEU. A quick glance at the major trading lines, reveals the rebound is noticeable since the start of the pandemic. Asia - Mediterranean rates were the first to cross the $10,000/FEU mark by increasing 27% in May, and 44% since the start of the year. Asia - US East Coast rates climbed 18% to $7,328/FEU, and Asia - Europe prices increased 27%, closing the month at $9,871/FEU, more than six and a half times its level a year ago. With no easing in demand, Asia - US West Coast rates also increased, 11% for the month and 28% so far this year, to $5,379/FEU. The graph below shows the freight rates vs the idle ships on a weekly basis.

Chart 2: Weekly index performance vs the total number of idle container ships from feeders up to the largest container vessels (1000-25000 TEU) provide by the Signal Ocean data fused with commercial data by Blue Net Chartering

Looking at the graphs above, it seems that the world does not have enough containers in the right places to handle cargo demand. The global shortage of containers is crucial and it is estimated that will last until 2022. Some market participants are concerned that due to the inability to reposition containers to suitable areas, a large number of new containers will be stranded at the terminals and there will be further delays at the ports. Although the entire industry hopes that these logistics problems can be eased as soon as possible, at this moment it seems that these will at least last through the end of the third quarter. 

Looking ahead, for shipping costs to return to pre-pandemic levels, global production will have to resume its normal patterns, with North America and Europe producing more of their own products and relying less on those made in Asia, especially China. Furthermore, the extreme shortage of ships’ supply and containers means there is absolutely no excess capacity to handle the typical disruptions seen in freight transportation, like a simple engine malfunction. Thus, market expectations provoke that the current boom of freight rates is here to stay in the coming months. 

Follow  the Signal Group at LinkedIn to get the latest product updates on the Signal Ocean Platform, they will include containers soon, stay tuned!

Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert
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Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert

Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

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