A little more clarity about the market
The much-feared strike on the American East Coast fortunately ended relatively quickly at the start of October.
Before October, the uncertainty surrounding the strike was the main source of concern regarding market conditions for the remainder of 2024. A prolonged strike could have had significant consequences for the global balance between supply and demand for shipping capacity. However, it is important to emphasize that the underlying issue has not been resolved but merely postponed until January 15, 2025. So, what does this mean for market conditions in the short and medium term.
The direct consequences of the strike
In the very short term, some domino effects of the strike will become visible. The ships that were 'stuck' and anchored off the U.S. East Coast have faced delays of at least three days. This means they will also arrive at their next destination three days later. The bottlenecks created by this in U.S. ports will cause further delays for ships arriving after the strike. When these delayed ships return to Europe, Asia, and Latin America, this will temporarily reduce the capacity to transport export cargo from these regions. These effects will be felt a few weeks after the strike, as the ships sail back to their original destinations.
What does the future hold?
However, the end of the strike also means that there is no longer any immediate pressure on the market to halt the decline in spot rates, which have been falling since the market peaks in mid-July. It is therefore likely that rates will continue to drop in the coming weeks. Nevertheless, it remains important to emphasize that, despite three months of price declines, current rates are still significantly higher than before the Red Sea crisis.
Potential risks and key factors
As we head into the second half of November and December, two possible events could drive up freight volumes and spot rates, particularly for shipments bound for the U.S. The first event is the risk of another strike on the U.S. East Coast on January 15. The agreement that ended the strike in October only addressed wage conditions. However, the dispute over the use of automation in the ports remains unresolved. The dockworkers' union is strongly opposed to any form of automation, not just robots but also remotely operated equipment.
The union's positions are not always consistent. On the one hand, they complain about the dangers of their work and the fact that they work up to 100 hours a week. At the same time, they oppose remotely operated equipment, which could actually remove workers from dangerous situations. They also don't seem to support hiring more staff to reduce the number of working hours per week. As a result, there is a significant risk that no agreement will be reached on automation, which could lead to another strike in January.
It is likely that some U.S. importers will want to mitigate this risk by shipping goods earlier than usual, so they arrive in the country before a potential strike. This will lead to an increase in freight volumes from Asia in the second half of November and from Europe during December, which will also put upward pressure on freight rates.
The second event is the U.S. presidential election. Should Trump win the election, some U.S. importers may increase their freight volumes as early as November and December to bring goods into the country before the tariffs proposed by Trump take effect. So far, he has mentioned tariffs of 100% on imports from China and 200% on imports from Mexico. This increase in freight volumes would be in addition to the expected rise due to the strike risk.
Long-term consequences and new challenges
For the route between Asia and Europe, no new major issues are expected, and there seems to be no immediate solution in sight for the Red Sea crisis. In fact, the Gemini Alliance, formed by Maersk and Hapag-Lloyd, has announced that they will opt to sail via the southern tip of Africa when their new network launches in February. This suggests that both shipping companies are not expecting a quick resolution. Since restructuring a network involves a significant operational burden, they are indicating that a solution is likely not expected until the second half of 2025 or later.
The Red Sea crisis will therefore have a lasting impact on the global balance between supply and demand in the container transport sector. According to the latest data from Container Trade Statistics, freight volume, measured in TEU*Miles, was as much as 25% higher in August 2024 compared to August last year. By comparison, the capacity of the container shipping fleet has increased by 10.4% in 2024.
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