Global Shipping Gridlock Threatens Back-to-School Season Supplies, Retailers Warn

Shipping costs are skyrocketing due to a lack of container space and longer routes. This shortage is causing delays and could impact the availability of back-to-school and holiday season goods. Experts predict prices will continue to rise throughout June.

CONTENTS: Global Shipping Gridlock Threatens 

• Global Shipping Crunch Looms
• Shipping Costs Skyrocket
• Spot Rates Spike, Cargo Rollover Risk
• Deja Vu: Shipping Shortage Returns
• No Spare Ships: Capacity Crunch Hits Again
• Shipping Costs Soar Again: “Greedy” Carriers, Empty Box Woes

Global Shipping Crunch Looms

-Global Shipping Gridlock Threatens

Global trade is facing a capacity crunch in ocean containers just as peak shipping season begins. Freight spot rates have surged by around 30% in recent weeks and are projected to continue climbing. Supply chain disruptions caused by adverse weather, extended ocean transits, and vessel port skips are exacerbating the situation. Xeneta, a freight intelligence firm, predicts that rates may continue to rise through June, surpassing the significant spike seen in the Red Sea region, which will eventually impact consumer prices.

Global trade is facing a perfect storm, leading to a shortage in shipping container capacity and a sudden surge in ocean freight rates.

The onset of peak shipping season, along with longer routes to avoid the Red Sea and adverse weather conditions in Asia, has disrupted trade flows along crucial routes. Ocean carriers are either skipping ports or reducing their time spent at port and neglecting to pick up empty containers to maintain vessel schedules for timely deliveries.

These supply chain cost challenges arise at a critical time when consumer goods destined for back-to-school and holiday seasons are being transported by sea.

Emily Stausbøll, a senior shipping analyst at Xeneta, anticipates that spot rates from the Far East to the U.S. West Coast will likely exceed the levels observed during the peak of the Red Sea crisis earlier this year, highlighting the significant recent rate hikes.

According to Xeneta’s ocean freight rates, there’s a noticeable increase in spot market rates alongside a widening gap between spot and long-term rates. Emily Stausbøll noted that the larger this gap becomes, the higher the risk of cargo being rolled over, a phenomenon already occurring.

Spot rates had initially dropped following the sharp increase triggered by tensions in the Red Sea at the beginning of 2024. However, since the end of April, they have surged by an average of $1,500 on routes to the U.S. coasts. Additionally, some of the highest contract rates charged by shippers are now more than double what they were just a month ago.

Despite earlier predictions of sufficient container and vessel capacity following a global freight recession, Goetz Alebrand, head of Ocean Freight Americas at DHL Global Forwarding, reveals that there is currently insufficient vessel space on several trade routes to meet market demands. He highlights space constraints on trade lanes from Asia to Latin America, Transpacific routes, and Asia to Europe, affecting specific locations, carriers, and equipment types.

Alebrand also points out a shortage of 40-foot containers at the Chinese port of Chongqing, indicating ongoing high demand and extended transit times. He emphasizes DHL’s proactive monitoring of the situation to address potential challenges.

Judah Levine, head of research at Freightos, explains that in March and April, ocean carriers utilized idle vessels and ships from other routes to mitigate longer voyages, maintain container flow, and adhere to weekly departure schedules. However, this approach has left no excess capacity in the market.

Judah Levine highlights the recent surge in demand for exports from China, coupled with a decrease in the number of repatriated empty containers, resulting in difficulties for shippers to find empty equipment at certain export hubs. This scarcity of containers, combined with already stretched vessel capacity, is driving up rates even further.

This latest increase in ocean freight rates follows a previous peak earlier in the year, characterized by Levine as an “elevator floor” ranging from $3,000 to $5,000 per container. Prices at that time were double compared to a year ago.

Logistics price hikes are eventually passed on to consumers, and the Federal Reserve has cited soaring freight rates during the pandemic as a contributing factor to inflation. Logistics providers are issuing alerts to shippers worldwide, including major retailers, about the container shortage.

Orient Star Group warns of a serious equipment shortage caused by long-term congestion, blank sailings, and increased demand due to South America tariff implementation. They advise shippers to arrange empty container pick-up as early as possible to secure resources in advance.

A new round of general rate increases set for June 1 has prompted criticism from Orient Star Group, labeling the additional $1,000 charge as carriers being “greedy” amidst sudden increased demand.

MSC announces new rates of $8,000 to $10,000 for 40-foot containers to the U.S. West Coast, while Wan Hai plans to charge a premium for “space protection.”

Honour Lane Shipping warns that the substantial rate increases could push the market to a new post-pandemic high, with capacity out of Asia tightening and carriers implementing diamond rates.

Blank sailings have increased in May and June, with 17 sailings canceled on the Transpacific route between weeks 20 and 24, according to maritime shipping research firm Drewry. HLS notes that rerouting ships around the Horn of Africa due to Red Sea issues accounts for 17% of global container shipping capacity, further exacerbating pressure on freight rates.

HLS predicts that the challenging conditions will persist, especially with the U.S. consumer economy remaining robust. With retail sales forecasted to increase in 2024, they expect the current market trend and space situation to continue through at least June.

Jonathan Gold, vice president for supply chain and customs policy at NRF, emphasizes that regardless of economic headlines, consumers are actively shopping, and retailers are ensuring they have adequate merchandise in stock to meet demand. He suggests that restocking efforts may have only just begun.