Maritime Shipping Still Facing Challenges as Ocean Spot Rates Reach Two-Year Highs

Spot rates for shipping forty-foot equivalent containers from China to North America have hit their highest levels since the summer of 2022 and continue to rise. While the supply chain disruptions today differ from those during the pandemic, they still pose significant challenges.

During the pandemic, issues such as spiking demand, limited production, insufficient transportation capacity, and panic ordering caused severe supply chain disruptions. Currently, insufficient transportation capacity and panic ordering remain significant issues, affecting order lead times and downstream logistics.

Demand for goods has been stable, with durable goods orders slightly down year-over-year in May. The Inbound Ocean TEUs Volume Index (IOTI) shows a 15% year-over-year increase in bookings from China to the U.S., though this is down 13% from peak levels in August 2023.

Capacity issues have been exacerbated by the Israel-Hamas conflict, which began in October last year, destabilizing a major shipping route. Houthi rebel attacks in the Red Sea have extended trip durations by 10-12 days, removing nearly two weeks of capacity from each vessel. This impacts over 25% of global capacity, indirectly affecting shipments from Asia to the U.S.

Average vessel capacity from China to the U.S. is down about 8% year-over-year in June, a trend consistent since last September. Service deterioration is also a problem, with average port pair delays growing from three to five days over the past year. Rejection rates have risen from 8% in 2023 to above 10% this year, currently at 14.5%.

The peak season for maritime imports traditionally falls in July and August. If current demand growth is due to orders being pulled forward for on-time delivery, the next two months’ IOTI will be flat. If not, rates and capacity will face increased pressure, impacting domestic intermodal and the overcapacity-laden trucking industry.

While not as chaotic as the pandemic era, supply chains are more challenged than last year!