The ocean freight market has been experiencing significant disruptions since May, driven by a complex interplay of factors that are stretching capacity and driving rates to unexpected levels. This situation is reminiscent of the pandemic era, leading to an early peak season in the ocean freight market. This development has caught both Non-Vessel Operating Common Carriers (NVOCC) and direct Beneficial Cargo Owners (BCO) by surprise. It is crucial for shippers and logistics providers to understand these market dynamics and how to effectively respond.
Understanding Ocean Peak Season
Typically, ocean peak season occurs from August through October, coinciding with retailers stocking up for the holiday season. During this period, shipping volumes surge, leading to higher and often volatile rates due to the heightened demand for limited shipping capacity.
Factors Accelerating the 2024 Ocean Peak Season
Multiple market drivers are contributing to the early onset of the 2024 peak season, including:
- Red Sea Capacity Absorption The introduction of new vessels has been significantly offset by disruptions in the Red Sea, which are absorbing a considerable portion of global shipping capacity. Ongoing conflicts in the region are forcing carriers to divert from the Suez Canal, opting for the longer route around the Cape of Good Hope. These diversions are reducing available capacity by extending transit times, removing about 9% of global capacity year-over-year, while new builds are only adding about 8%, leading to a persistent capacity deficit. Read more about the: Suez Canal Trade Disruptions.
- Unexpected Demand Factors such as increased eCommerce shipments and restocking of inventories have led to demand levels on Transpacific East Bound (TPEB) and Asia-Europe trade lanes that far exceed original forecasts. This surge in demand has caught the industry off guard, resulting in a scramble for available shipping space.
- Strike Threats Potential strikes by the International Longshoremen’s Association (ILA) in North America and Canadian rail workers have prompted many shippers to expedite their shipments to avoid disruptions.
Implications for Ocean Freight Shipping Rates
Spot rates are on the rise, with General Rate Increases (GRIs) scheduled bi-weekly through mid-June. A Peak Season Surcharge is expected to begin on June 1. Carriers anticipate that these rate hikes will remain in effect in the short term, as vessels departing from Asia are fully booked well into June. The early peak season is likely to extend these conditions for several months.
![ocean market graph](https://www.dantful.com/wp-content/uploads/2024/06/ocean-market-graph-1024x576.png)
The Phenomenon of Rolled Containers
Carriers often overbook vessels, expecting some shippers to book the same shipments with multiple carriers or NVOCCs to ensure loading. Currently, shippers and NVOCCs are following through with their bookings rather than canceling, resulting in significant roll pools. Rolled containers, which are typically prioritized for the next sailing, may now be rolled multiple times due to the rapid rate increases.
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Preparing for an Early Ocean Shipping Peak Season
In light of these challenging market conditions, businesses must act with intention rather than panic. Here are some strategies to navigate the current market:
- Advance Planning Ensure you plan your shipments well in advance to secure space and avoid last-minute surcharges.
- Diversify Carriers Work with multiple carriers to spread risk and ensure you have options if one route becomes congested.
- Monitor Market Trends Stay informed about market trends and potential disruptions to adjust your logistics strategies accordingly.
- Leverage Technology Utilize logistics technology to optimize your supply chain processes and improve visibility.
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