Container spot freight rate growth stalls: dual impact of capacity release in the Persian Gulf and new vessel deliveries

Spot Rates Turn Downward: Release of Persian Gulf Capacity Is the Main Cause

In mid-July, the continuous upward momentum of container spot rates came to an abrupt halt. In its weekly report released on July 14, industry consultancy Linerlytica pointed out that due to the massive release of container ship capacity previously trapped in the Persian Gulf, coupled with new ship deliveries, the increase in capacity supply led carriers to fail to hold on to the price increases achieved in early July, resulting in a comprehensive pullback in spot rates.

Data shows that the container capacity trapped in the Persian Gulf region has sharply decreased from a peak of 490,000 TEU in April to about 30,000 TEU. Meanwhile, approximately 170,000 TEU of new ships have been delivered in the past month. Linerlytica stated: "Carriers are still pushing two rounds of price increases on July 15 and August 1, but as the tight space situation eases and new capacity is introduced, freight rates seem to have peaked."

Typhoon Disrupts Asian Ports but Does Not Change Freight Rate Trend

Typhoon Bavi struck the eastern coast of China last week, disrupting operations at the ports of Shanghai and Ningbo-Zhoushan, causing some ships to queue for berthing. Linerlytica believes that the backlog of ships will take weeks to clear. Nevertheless, despite the congestion at Asian ports, freight rates still fell by 4.3%, and the rally that had accumulated a 70% increase since April may have come to an end.

Price War Intensifies on Pacific Routes

On the transpacific routes, members of the Gemini Cooperation and the Premier Alliance have significantly reduced freight rates, pulling down the Asia to US West Coast rate to $5,300/FEU, a drop of $1,500 from a week earlier. Linerlytica noted that this directly dragged down the overall freight rate level on the Pacific routes.

Europe Route Rates Under Pressure, Bearish Outlook Forward

The Asia to Europe route also saw significant price reductions. The Gemini Cooperation again sharply lowered spot rates, triggering a "freight rate war." Currently, quotes from various carriers vary widely, ranging from $4,500/FEU to $7,000/FEU, but the downward trend is clear. European container forward freight futures show that the market expects freight rates to fall by 60% from now until November.

Long-Term Overcapacity Shadow Looms

Although short-term freight rate fluctuations are affected by geopolitics and port congestion, the industry should pay more attention to the risk of long-term overcapacity. As of now, the container ship order book stands at 1,712 vessels totaling 13.72 million TEU, equivalent to 40% of the existing fleet capacity. These new ships will all be delivered by 2030, and by then, overcapacity will become the norm in the industry.

Industry Impact and Outlook

The decline in spot rates is positive for shippers and freight forwarders, helping to reduce transportation costs. However, for liner companies, the downward pressure on freight rates combined with the pressure of new ship deliveries will challenge their profitability. Against the backdrop of the Red Sea crisis causing diversions, the release of capacity has temporarily alleviated some space shortages, but long-term supply-demand imbalance may force shipping companies to accelerate scrapping of old ships or delay new ship deliveries.

In the coming weeks, close attention should be paid to whether the price increase on August 1 can be implemented, as well as the ongoing impact of the typhoon season on Asian port operations.In the coming weeks, close attention should be paid to whether the price increase on August 1st can be implemented, as well as the ongoing impact of the typhoon season on Asian port operations. At the same time, the evolution of the situation in the Persian Gulf will remain a key variable affecting Middle East shipping routes.