At FreightWaves Greg Miller reports that container costs have reached their highest rates ever post-pandemic:
It’s now crystal clear that container ships will not return to the Red Sea anytime soon. Lengthy detours around the Cape of Good Hope have already pushed spot container rates far above pre-COVID levels, and rates continue to climb.
Yet another commercial ship was hit by Houthi rebels on Wednesday, the bulk carrier Genco Picardy, owned by New York-based Genco Shipping & Trading (NYSE: GNK). This was followed by another barrage of coalition airstrikes in Yemen, then more Houthi attacks on shipping on Thursday.
The Drewry World Container Index (WCI) Global Composite jumped to $3,777 per forty-foot equivalent unit for the week ended Thursday. It’s now up 173% year to date.
With the exception of the COVID boom period in December 2020 through October 2022, this week’s global spot-rate reading is the highest on record since the WCI debuted in June 2011.
And here’s what the trend looks like for shipping from Asia to the West Coast:
I think there are several things to consider about that graph. First, costs skyrocketed throughout 2021 but had returned to the previous trend just about a year ago. Second, those are Asia to West Coast costs. Any effects from depradations on Red Sea shipping are run-on effects.
But the real point I wanted to make is that the greatest effect on such volatile shipping costs will be on low cost low margin goods. iPhones are shipped by air not by sea. Effects on air transport would be run-on effects on run-on effects. When the world is stable and predictable shipping raw materials across the Pacific to import them back in the form of inexpensive goods makes a bizarre sort of sense as long as the cost of maintaining that stability and predictability are not passed along to importers or consumers.
I would have thought that the pandemic might have taught us that extremely long extremely fragile supply lines are risky but perhaps not.
There’s a high chance this is not related to the Houthis or the Mid-East; but a reflection that real demand is picking up.
A couple of days ago, TSMC stock rocketed higher after releasing updated projections that smartphone, PC, and server demand will increase significantly this year — and they would know since they have to make the chips powering the devices.
If you look at asset prices (bitcoin, stocks — in particular industries like homebuilding, Walmart, Costco); they suggest increasingly robust demand (or even speculative mania) despite the “sentiment”. The only prices that suggest low or decreasing demand is commodities but they are probably a “lagging” indicator.
By the way, Apple actually does a lot of shipping by ocean, its cheaper and greener.
https://maritime-executive.com/article/apple-cuts-emissions-from-transport-by-95-percent-using-normal-ships
I believe the Panama Canal is still down by about 40% in traffic. May be exaggerating effects in Suez.
Steve
Yes, I think that’s probably a factor. The canal’s issues seem to be drought and inadequate infrastructure investment. I thought that was inevitable 45 years ago. We shouldn’t be surprised.
The canal is responsible for about 3% of Panama’s GNP. A decline in canal traffic won’t ruin the country but it will still be painful.