Did you enjoy the downward trend of shipping rates in 2023? You did? That is good because, for the time being, there are very few reasons container rates should not continue to go up. One of the primary reasons for transpacific container volume health is American consumer spending.
American consumers, beyond reasonable logic, have still been spending. Consumer spending has continued to put containers in the water. That trend may only keep up all the way to the scene of the crash, but up to now, it is still there, if only moderately. How long will it last? No one knows. Although inflation has outpaced incomes over the past three years, so buying power per dollar is still down quite a bit, American credit card debt is at an all-time high, and delinquencies are rising, so we may finally be out of money.
On a global level, there are trade route bottlenecks that have developed that are making the ocean carriers spend more money. Because of Houthi Rebels attacking cargo hauling vessels in the Red Sea, which is the pathway to the Suez Canal, major carriers are diverting vessels to take the longer route around Africa to get to the Atlantic Ocean. Routing vessels around the ‘Cape of Storms’ can add 15 days to the sail time, burn a huge amount of added fuel, and take vessels through pirate waters. There is nothing good about it. Add in the intricacies of African ports struggling to keep up with the additional traffic and provide dependable fueling and replenishment capacity, and the congestion can easily turn a 15-day delay into a 30-day delay. This all costs the ocean carriers more money which in turn will cost shippers more.
Bottleneck number two is the Panama Canal restricted traffic due to low water levels. Normally, there would be 36 vessels a day passing through the canal, then the limit was dropped to 32 vessels a day, then lowered the limit to 20 and 18 daily, and now have a target of 24 vessels per day. Vessels, at least the smart ones, are not delayed too badly due to set reservations. Vessels that do not have reservations face much stiffer wait times. The old movie actor John Wayne is credited with saying “Life is tough, but it is tougher if you are stupid.” I get it, why some vessels would not make reservations is beyond me.
There we have it, good container volume and two major canals that connect our world are hamstrung. One by Houthi rebels, one by Mother Nature, neither being directly controlled by the western world. People can talk about the weather, but no one does anything about it so the low Panama Canal water level will continue until it doesn’t. As far as the Suez Canal, the word is the Houthi Rebels could not throw a rock without help, and the blessing, from Iran. The issues in the Red Sea may continue until ‘you know who’ tells them to stop. Now would be a good time to ask your cargo insurance provider if your coverage includes War & Strikes.
So, if I were a betting person, which you know I am not because I am risk-averse, but if I were, if everything else remains the same, I would bet ocean rates will continue to rise in 2024 until the canal bottlenecks are clear.