World shipping costs surge amid market uncertainty

The Drewry World Container Index reported a spot rate of $9,387 on July 11, more than double February’s rate but below the pandemic peak of $16,000. Shipping costs for a standard 40-foot container from Shanghai to New York have surged to nearly $10,000, sparking frustration among importers and leading some experts to suggest a market bubble.

This price surge is largely attributed to missile and drone attacks by Houthis, which have prompted ships to avoid the Suez Canal. The longer alternative route around Africa requires more vessels, causing delays and driving up transport costs for the 80 per cent of international trade that relies on sea freight.

In response, US retailers are importing goods earlier, contributing to higher rates during the peak seasons for back-to-school and holiday merchandise. Simon Heaney, senior manager at Drewry, labelled the situation a bubble, predicting prices may drop in the first half of next year.

Concerns about rising rates persist, particularly with the potential for tariffs from a possible Trump presidency. Shipping rates for routes like Shanghai to the US West Coast have also reached record highs, despite cargo volumes being below early pandemic levels.

Large carriers such as Maersk and Hapag-Lloyd have raised profit forecasts, while analysts express confusion over the rapid rate increases. A decline in demand could lead to a swift normalisation of prices, according to Deutsche Bank Research analyst Andy Chu.

Attribution: Reuters