Global Shipping Container Capacity Crunch: A Perfect Storm for Exporters and Logistics Professionals

A confluence of global trade disruptions is creating a severe international shipping container capacity crunch, leading to a sudden and significant spike in ocean freight rates. The start of the peak shipping season, combined with longer transit times to avoid the Red Sea, and adverse weather in Asia, have severely impacted trade flows on key routes. As a result, ocean carriers are skipping ports or reducing their time spent at ports, often leaving empty containers behind to keep vessels on schedule.

These supply chain cost issues come at a critical time when consumer goods for back-to-school and holiday seasons need to be transported.

“From the Far East into the U.S. West Coast, it’s likely spot rates will surpass the levels seen at the height of the Red Sea crisis earlier this year, demonstrating the dramatic recent increases,” said Emily Stausbøll, senior shipping analyst at Xeneta.

Xeneta’s ocean freight rate data highlights the rallying spot market and the widening gap between spot and long-term rates. “The bigger the spread between long-term and short-term rates, the greater the risk of cargo being rolled, which is already occurring,” Stausbøll noted.

After an initial drop following the Red Sea tensions in early 2024, spot rates began to spike again by as much as $1,500 on average on routes to U.S. coasts since the end of April. Now, some of the highest contract rates are more than double the rates from just a month ago.

“This situation brings back memories of the chaos caused by the lack of available capacity during the Covid-19 pandemic,” Stausbøll added. “Similar to back then, some freight forwarders are now being pushed to premium rates to secure space guarantees.”

Early Xeneta data suggests that rates will continue to rise at the start of June.

The Impact on Container Availability

Since January, DHL has been warning about a container crunch due to the longer routes needed to avoid the Red Sea since the Houthi attacks began. Containers are spending more time on the water, leading to decreased availability for reloading. This issue has been exacerbated by adverse weather affecting port operations in China, Malaysia, and Singapore.

Shipping Capacity Forecasts Were Off

Many logistics experts had initially forecast sufficient container and vessel capacity post-global freight recession to handle supply chain issues from the Red Sea to the drought-ridden Panama Canal. However, Goetz Alebrand, head of Ocean Freight Americas for DHL Global Forwarding, told CNBC 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 said. “These shortages are affecting specific locations, some carriers, and certain types of equipment.”

He cited a shortage of 40-foot containers at the Chinese port of Chongqing last week. “As high demand and longer transit times continue, we are closely monitoring the situation to address any potential challenges,” Alebrand said.

Judah Levine, head of research at Freightos, noted that in March and April, ocean carriers used idle vessels and ships from other lanes to help offset longer voyages, keeping containers moving and maintaining weekly departure schedules. “But this has meant there is no excess capacity in the market,” he said.

Bad weather in East Asia at the end of April caused further delays, prompting ocean carriers to skip some port calls or reduce turnaround times at destination ports to make up time. This also means fewer empty containers have been brought back to China.

Increasing Imbalance in Ocean Freight

Recent increases in ocean freight rejections highlight the imbalance in the market.

“The recent rise in demand for exports out of China, combined with the dip in repatriated empty containers, means shippers are starting to find empty equipment hard to come by at some export hubs,” Levine said. “Even though demand levels are not extremely high, with vessel capacity already stretched thin, the recent increase in demand is enough to push rates higher, and the added lack of containers is only helping to push them up even more.”

Fear of a New Post-Pandemic Supply Chain Cost Record

This latest surge in ocean freight rates comes after a previous peak earlier in the year when prices set a new benchmark of $3,000-$5,000 per container, double the rates from a year ago.

Logistics price increases are ultimately passed on to consumers, and the soaring freight rates during the pandemic were among the factors cited by the Federal Reserve as a cause of inflation. In a series of customer alerts, logistics providers are warning shippers globally, including major retailers, about the container shortage.

“Carriers are facing serious equipment shortages nowadays due to long-term congestion, blank sailings, demand increases caused by South America tariff implementation, and so on,” warned Or…

For exporters, logistics professionals, and global trade analysts, staying informed and agile in response to these challenges is crucial. Monitoring market conditions, securing reliable partners, and exploring alternative logistics solutions can help mitigate the impact of this ongoing capacity crunch.

Stay tuned for further updates and strategies to navigate these turbulent times in global trade.

Strategies for Mitigating the Impact

In light of these significant challenges, shippers and logistics professionals must proactively adopt strategies to mitigate the current market disruptions. One effective approach is to diversify transportation modes. Leveraging air freight or rail transport, where feasible, can help alleviate some of the pressure on ocean freight. This might come at a higher cost, but it ensures goods continue moving towards their final destinations.

Another crucial strategy is to forge strong relationships with multiple carriers and freight forwarders. By not relying on a single partner, businesses can increase their flexibility and ability to switch routes or services when disruptions occur. This flexibility also allows companies to negotiate better rates and secure capacity during peak times.

Moreover, enhancing supply chain visibility through advanced tracking technologies and analytics can yield substantial benefits. Real-time tracking and predictive analytics enable shippers to respond promptly to any disruptions, reroute shipments if necessary, and better communicate with customers regarding potential delays.

Finally, maintaining a buffer stock or establishing regional distribution centres closer to key markets can provide a cushion against supply chain disruptions. While this approach may initially increase storage costs, it helps to ensure a more continuous supply and mitigates the impact of transportation delays.

By implementing these strategies, shippers can better navigate the complexities of the current supply chain environment, ensuring their operations remain resilient and responsive to ongoing challenges.