Shipping Industry Faces Rising Rates and Equipment Shortages Amid Red Sea Diversions

In recent months, maritime carriers have been grappling with significant challenges due to diversions in the Red Sea. This situation has led to carriers employing more vessels at increased speeds and relying heavily on transshipment to maintain container schedules through March and April. While these measures have generally kept things moving, there have been signs of strain: congestion at ports, more frequent port omissions, delays, and a drop in available empty equipment at export hubs.

Demand remained stable during March and April, allowing carriers to balance capacity and maintain elevated rates. However, as demand surged unexpectedly in May—likely due to restocking in Europe and early peak season activities on the transpacific routes—congestion worsened. These supply-side issues have manifested as equipment shortages in Asia, rolled containers, and skyrocketing rates.

Currently, spot rates from Asia to North America’s West Coast are nearing $5,000 per FEU, close to their peak during the early Red Sea crisis. This marks a 70% increase from April’s rates. Meanwhile, rates to the East Coast and Northern Europe have risen about 50% in May, although they are still below their February highs. Intra-Asia rates are also climbing, with surcharges driving up prices on secondary lanes as capacity tightens. If these trends continue, rates could surpass their Q1 highs with further increases expected in June.

Shippers might face months of elevated rates and delays due to high demand and restricted capacity. However, the situation might not be as severe as the pandemic-induced disruptions, primarily because the current demand increase, though significant, is not a surge. During the pandemic, the relentless surge in demand overwhelmed vessel supply and ports, causing severe congestion and escalating rates. This time, while volumes are increasing, they are not expected to surge to such extreme levels.

According to the National Retail Federation, US import volumes from May through September are projected to average 2.05 million TEU per month, peaking at 2.1 million in September. These figures are manageable for US ports, which have strategies in place from the pandemic era to handle such volumes. Thus, while rates are expected to rise due to demand and capacity issues, they are unlikely to compound to pandemic levels.

Additionally, if the current demand increase signals an early peak season, it is expected to subside within a few months. Just as rates climbed and then eased earlier in the year, a similar pattern might occur as peak season slows. However, until Red Sea traffic normalizes, rates are unlikely to drop below April’s levels.

The disruptions in ocean logistics might push more volumes towards air cargo, although May’s air cargo rates from China and South Asia to North America and Europe have remained stable. Increased sea-air demand has been noted, especially out of hubs like Singapore and Dubai. Middle East air cargo export rates rebounded 12-25% last week, indicating some increase in demand. However, with port congestion and rising ocean rates to these hubs, this option may become less attractive.