INSIGHT: Asia freight rates stay elevated on heavy congestion at key ports

SINGAPORE (ICIS)–Ocean container freight rates in Asia are expected to remain high in the near term amid persistent congestion at key ports in the region, particularly Singapore.

• Peak demand season, capacity issues continue to push up rates
• Singapore port wait times reduced, but challenges remain
• ASEAN Express offers faster rail alternative to sea freight

The Drewry World Container Index (WCI) edged up 1% to $5,901 per forty-foot equivalent unit (FEU) for the week ending 11 July, with the rate of increase easing from a double-digit pace se in recent weeks.

The Shanghai Containerized Freight Index (SCFI), which measures spot rates for shipping containers from Shanghai to major global ports, meanwhile, dipped 1% week on week to 3,674.86 points in the week ending 12 July.

The convergence of seasonal peak demand and strained capacity as commercial vessels continued to avoid the Red Sea and Suez Canal, are expected to keep shipping costs firm in the near term for container routes globally, said Judah Levine, the head of research at online freight shipping marketplace and platform provider Freightos.

According to supply chain advisors Drewry, ocean freight rates are expected to remain high until the end of the peak season, which typically falls between August to October each year.

SINGAPORE CONGESTION EASING
In Singapore, the world’s second-largest port and the largest transshipment hub connecting Asia and the west, the average wait time to berth has been “reduced to two days or under”, port operator PSA Singapore said in a statement on 10 July.

This compares to waiting times up to seven days for a berth in the port of Singapore in late May this year, according to logistics data group Linerlytica.

Singapore has experienced high berth demand and unscheduled vessel arrivals since the start of 2024, leading to increased waiting times despite utilizing all available berths, PSA said.

PSA has since “significantly ramped up its capabilities to support increased activity and mitigate the impact of global supply chain disruptions since the beginning of 2024”.

However, the PSA warned that “the Red Sea crisis has significantly disrupted global shipping and trade and we anticipate this challenging situation to persist for a prolonged period, potentially extending port congestion from Asia to Europe”.

For chemical tankers, shipping brokers have reported varying degrees of congestion and delays at Singapore ports.

A broker involved in bio-chemicals and clean petroleum product (CPP) trades noted congestion at all terminals with delays of at least one week.

A tanker carrying methyl acetate (MEAC) was facing a two-week delay in discharging cargoes at a key terminal in Jurong Island, another broker said.

Jurong Island is Singapore’s petrochemical hub.

A third broker indicated that delays in unloading and loading of cargoes at Singapore ports were generally measured in days rather than weeks.

A Singapore-based acrylates producer was having difficulties securing vessel space, as shipping companies were bypassing the congested port.

This congestion has also spilled over into Malaysia, impacting customers in both countries which are now experiencing delays of up to a week for July shipments.

Overall port congestion levels in Malaysia have been reduced, but berthing delays remain at five days at Port Klang, while Tanjung Pelepas has limited delays, Linerlytica said in an update on 10 July.

In India, heavy congestion is also reported at Colombo port, resulting in backlogs and delays, with adverse weather conditions around the Cape of Good Hope compounding the situation, causing further delays, according to global digital freight forwarder Zencargo in a note on 15 July.

Vessels are increasingly navigating around the Cape of Good Hope to avoid the heightened risks in the Red Sea and Suez Canal due to escalating Houthi attacks since November 2023, opting for a longer-but-safer route despite the added time and costs.

“The market from the Indian subcontinent to Europe is experiencing significant disruptions,” it said.

“Carriers have stopped accepting bookings from South India for Europe due to heavy congestion in Colombo, causing a minimum delay of three weeks in transshipment. Carriers are only quoting on spot rates due to the tight space situation​.”

Historically, Colombo has handled a substantial portion of India’s containerized exports and imports due to insufficient direct line-haul connections from the country’s east coast ports, according to Zencargo.

However, recent months have seen an unusual surge in volumes, exacerbated by vessel diversions linked to Red Sea shipping disruptions, with ships languishing for over five days before securing a berth, it said.

In China, port delays have worsened in the week to 10 July after recent improvements due to bunching of vessel arrivals, with wait times of up to four days in Shanghai and up to two days in Ningbo, Linerlytica added.

China is also set to continue grappling with rising container prices and leasing rates in July, according to Haoze Lou, a member of the broker team at online shipping container leasing firm Container xChange.

Scarcity of available slots for China-Europe and China-US routes has intensified, prompting offline suppliers to offer competitive prices to attract customers, Lou said.

“In June, we’ve observed a continued rise in container prices in China, impacting both trading and leasing activities,” he said, adding that a rebound is expected over the next month as slot availability tightens again.

CONTAINER RATES HINGES ON CONSUMER DEMAND
The outlook for the container trading and leasing market in the second half of 2024 hinges on a revival in consumer demand but faces uncertainties due to geopolitical disruptions and potential labor unrest, according to Container xChange.

Continued Houthi attacks threaten supply chains, while potential labor issues in US ports could further disrupt operations, it said.

“However, if the current market conditions persist without major changes, we expect container rates to ease,” Container xChange noted.

“This reduction in rates could trigger an uptick in container buyer activity, as the buyer side is currently waiting for prices to decline before resuming trading and leasing activities.”

RAIL OPTIONS OPEN UP FOR CHINA-SE ASIA ROUTE
The successful inaugural trips of the ASEAN Express – a new cargo rail service connecting Malaysia, Thailand, Laos, and China – highlight its potential as a faster and more efficient alternative to traditional ocean freight as it connects new trade routes and inland ports across Asia.

This includes the Kontena Nasional Inland Clearance Depot in Selangor, Malaysia; Latkrabang Inland Port in Thailand; and the Thanaleng Dry Port in Laos, which connects to a railway terminal in Chongqing, southwest China.

The first ASEAN Express cargo train successfully completed a round trip between Malaysia and China on 11 July, carrying electronic appliances and agricultural products, marking a milestone in regional trade connectivity which could boost trade of petrochemical end-products.

The recently launched cargo rail service has been met with optimism by Asian recyclers, though immediate impact is expected to be limited.

While the service directly benefits buyers and sellers in China, Malaysia, Thailand, and Laos, recyclers in Taiwan, Indonesia, and Vietnam anticipate primarily using ships, potentially freeing up shipping capacity and alleviating tightness in vessel and container space.

This new service significantly reduces transit time compared to sea freight, taking just under 14 days compared with up to three weeks by sea.

“This service will provide smoother and more efficient goods flow throughout the region as well as enhance rail cargo transport capacity while reducing logistics costs by an estimated 20% from current market rates,” Malaysian transport minister Loke Siew Fook said in a speech at the flag-off ceremony for the new rail service on 27 June.

“The shorter transport times are also expected to open up new markets, with the agricultural sector in particular to benefit by allowing perishable products to be transported more quickly by rail,” he added.

Insight article by Nurluqman Suratman

Additional reporting by Hwee Hwee Tan, Corey Chew, Arianne Perez and Ai Teng Lim

Thumbnail image: At the Keppel and Brani port terminals in Singapore, 15 June 2024 (By Joseph Nair/NurPhoto/Shutterstock)