July 2024 Has the peak been reached? As the markets entered July, the overall SCFI spot rate index leveled out for the first time since the beginning of May. However, this level is 92% higher than during the first week of May and 17% higher than at the beginning of June. Usually, the SCFI shows changes slightly earlier than other indices, such as the WCI – although this is not always the case. Struggling shippers will most likely see this as a light at the end of the tunnel. Anyone who managed supply chains during the pandemic disruptions might fear that it is not the light at the end of the tunnel, but rather an oncoming train instead. Not only have we seen this play out during the pandemic – the comparison with the oncoming train was also often used, and when the Suez Canal got blocked it was indeed an oncoming train. If we are to provide a reasonable outlook, we need to interpret the current situation first. Looking at the carriers, they are very much repeating the playbook from the pandemic. The pace of rate increases is just as fast as it was during the pandemic, and there are similar requests for many contract customers to pay additional surcharges if they want their bookings to be confirmed. We are also continuing to see a flurry of new services launched on Transpacific and Asia-Europe trades by not just main carriers, but also small niche carriers using relatively small vessels. This is perfectly sensible as the right freight rates make it profitable to insert such services. Just like during the pandemic, this does indeed add more capacity to the trade. And just like in the aftermath of the pandemic, shippers should see these services as a short-term opportunity, but not as a long-term insertion of permanent services. Looking at the shippers, we similarly see history repeating itself. Faced with the prospect that conditions might get even worse there is a clear drive to ship products earlier than planned. Quite a few shippers had the approach in spring 2021 that “surely this cannot get any worse”, only to be very negatively surprised later in the year. This time, there seems to be a tendency to pay the premium for early shipments to guarantee the products are shipped now, rather than being caught later. Of course, this in turn carries the opposite risk that right now is the peak of the market. Looking at the market fundamentals in terms of the balance between global demand and supply, the latest data from Container Trade Statistics shows a year-on-year growth in TEU*Miles of 25%, driven by the need to go around Africa. However, the same underlying data also shows that, unless something else happens, then the peak of the market is from May to September, with July being the peak. The positive news for shippers is that we are now experiencing the worst of the impact. That does not mean rates cannot increase more in July, but overall, July is the peak. It also suggests a potential abatement in rates towards September and marked drops from October when peak season ends. But - and yes, there is a “but”. This is critically dependent on no new calamities befalling the supply chains in the coming months. There are some very clear risks, which means that, unlike the “black swan” event of the Suez Canal blockage, we can indeed see these “swans” right in front of us. It doesn’t mean they will happen, but it is certainly a risk. DSV – Global Transport and Logistics We provide and manage supply chain solutions for thousands of companies every day – from the small family run business to the large global corporation. Our reach is global, yet our presence is local and close to our customers. Around 75,000 employees in more than 80 countries work passionately to deliver great customer experiences and high-quality services. Read more at www.dsv.com
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