Has the peak been reached?

The SCFI index often shows movement earlier than other spot indices in the freight market. For shippers under significant pressure, this often seems like a sign of hope. There is light at the end of the tunnel. However, anyone who worked in logistics during the COVID-19 pandemic knows that this could also be the light of an oncoming freight train. This metaphor was used in the spring of 2021 when the market appeared to be stabilizing. Ultimately, it turned out to be a freight train, not the hoped-for light at the end of the tunnel.

To get a clear picture of what to expect, it is important to soberly assess where the market currently stands. Shipping lines are exhibiting the same behaviour as during the pandemic. Spot rates are rising as quickly as they did at the end of 2020 when bottlenecks became apparent. Shipping lines are now more frequently asking their contract customers to pay more to have their bookings accepted.

Shipping lines continue to launch new services, both in the Pacific and from Asia to Europe, often with smaller ships than usual. This makes sense given the high rates that make this policy profitable, even with small and expensive chartered ships. This leads to more capacity on short routes, but these services are likely to disappear once the issues are resolved. Shippers should therefore see these services as a temporary solution, not a stable long-term option.

Déjà-vu in the logistics market

Shippers are also experiencing a sense of déjà-vu. The risk of further deterioration is prompting many to ship their cargo earlier than usual. In the spring of 2021, many shippers thought "it couldn't get any worse," but were deeply disappointed when it did. Currently, more shippers are opting to ship early and at higher costs, rather than waiting.

According to the latest data from Container Trade Statistics, global demand for container transport has increased by 25% year-on-year (considering the detour around Africa). The market appears to peak between May and September, with July being the high point. This could be good news for shippers, as rate declines are expected in September, with faster declines in October following the peak season.

Black Swans

However, this scenario depends on the absence of new developments that could disrupt the market balance. There are several clear risk factors that could influence this scenario. These potential 'black swans' include:

• A potential strike by dockworkers on the East Coast of the US, where a collective bargaining agreement expires on September 1.
• A looming strike among rail workers in Canada.
• Worsening strikes in Europe, such as recent spontaneous strikes in Germany and France.
• A possible strike on the West Coast of Canada, where dockworkers are in conflict with DP World.
• Further escalation of the conflict in the Red Sea, where the Houthis are attacking ships.
• Hezbollah's threat to fire rockets at ports and airports in Cyprus.
• Worsening bottlenecks in Asian ports.

Strikes are common in many ports and usually have only a local effect. For example, in 2015, dockworkers on the West Coast of the US deliberately slowed down their work, leading to severe congestion. This had a major impact on the West Coast but did not affect the global market.

The market under pressure: risks and strategies for shippers

Currently, however, the market is not normal and is under significant pressure. This means that any of the mentioned risk factors can have larger global effects than usual. Shippers must therefore make a choice: do they ship their cargo early (and expensively) with the risk that the market recovers and rates drop? Or do they wait, risking that one of the 'black swans' worsens the situation? Given the disappointing experiences in 2021, many shippers are now opting to ship early.

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