Shipping Container Crunch Sparks Surge in Ocean Freight Rates, Alarming Global Trade

A perfect storm in global trade is causing a shipping container capacity crunch, leading to a sudden and dramatic increase in ocean freight rates. The peak shipping season, combined with extended transit times to avoid the Red Sea and adverse weather in Asia, has severely disrupted key trade routes. In response, ocean carriers are skipping ports, reducing time at ports, and failing to pick up empty containers to keep vessels on schedule.

This supply chain disruption coincides with the crucial period for shipping consumer goods for back-to-school and holiday seasons. “From the Far East into the U.S. West Coast, it is likely spot rates will surpass the level seen at the height of the Red Sea crisis earlier this year, demonstrating how dramatic the recent increases have been,” said Emily Stausbøll, senior shipping analyst at Xeneta.

Skyrocketing Spot Rates

Xeneta’s data reveals a significant rise in spot market rates and a widening gap between spot and long-term rates. “The bigger the spread between long and short-term rates, the greater the risk of cargo being rolled, which we know is already happening,” Stausbøll noted. Spot rates, which had fallen after the sharp rise caused by Red Sea tensions in early 2024, began spiking again by as much as $1,500 on average for routes to the U.S. coasts since late April. Some of the highest contract rates are now more than double those of a month ago.

Stausbøll compared the current situation to the chaos during the Covid-19 pandemic, where freight forwarders were forced to pay premium rates to secure space. Early Xeneta data indicates that rates will continue to increase at the start of June.

Impact of Longer Routes and Bad Weather

DHL has been warning about a container crunch since January due to longer routes avoiding the Red Sea following Houthi attacks. Containers are spending more time on the water, making them unavailable for reloading. Bad weather affecting port operations in China, Malaysia, and Singapore has further exacerbated the situation.

Insufficient Shipping Capacity

Many logistics experts had predicted sufficient container and vessel capacity post-global freight recession to manage supply chain issues. However, Goetz Alebrand, head of Ocean Freight Americas for DHL Global Forwarding, reports that vessel space on many trade lanes is insufficient to meet market demand. “Trade lanes from Asia to Latin America, Transpacific routes, and Asia to Europe are all experiencing space constraints,” Alebrand stated. He cited a recent shortage of 40-foot containers at the Chinese port of Chongqing.

Judah Levine, head of research at Freightos, noted that ocean carriers initially used idle vessels to offset longer voyages and maintain schedules, but this has left no excess capacity in the market. Bad weather in East Asia at the end of April caused further delays, leading carriers to skip port calls or shorten turnaround times, resulting in fewer empty containers returning to China.

Increasing Ocean Freight Rejections

Levine pointed out that the recent increase in demand for exports from China, combined with a reduction in the number of repatriated empty containers, has made it difficult for shippers to find empty equipment at some export hubs. “Even though demand levels are not extremely high, with vessel capacity already stretched thin, the recent increase in demand is enough to push rates up, and the added lack of containers is only helping to push them up even higher,” Levine said.

Fear of New Post-Pandemic Supply Chain Cost Record

The latest surge in ocean freight rates follows a previous high earlier in the year, with rates during the pandemic reaching $3,000-$5,000 per container. These logistics price increases are ultimately passed on to consumers, contributing to inflation. Logistics providers are warning global shippers, including major retailers, about the container shortage.

“Carriers are facing serious equipment shortage due to long-term congestion, blank sailings, and increased demand,” warned Orient Star Group in a note to clients. The group also noted that upcoming general rate increases could see carriers charging an additional $1,000 under the current demand surge.

Prolonged Market Strain

MSC, the world’s largest ocean freight company, announced new rates of $8,000 to $10,000 for 40-foot containers to the U.S. West Coast. Wan Hai is also charging a premium for “space protection.”

Honour Lane Shipping (HLS) informed clients that huge rate increases could push the market to a new post-pandemic high. HLS noted the re-routing of ships around the Horn of Africa, which accounts for 17% of global container shipping capacity, and warned that the cancellation of sailings will only increase freight rate pressures.

Maritime shipping research firm Drewry reported 17 canceled sailings on the Transpacific route between weeks 20 and 24 on the shipping calendar, with significant contraction of space available to the U.S. East Coast.

HLS predicts the current market trends and space issues will persist at least through June, supported by a healthy U.S. consumer economy and forecasted retail sales increases. “Regardless of what headlines about the economy might say, consumers are shopping, and retailers are making sure they have merchandise on hand to meet demand,” said Jonathan Gold, vice president for supply chain and customs policy at NRF.