Reasons for the sharp increase in ocean freight rates

Introduction

This year, many of our customers have inquired about the reasons behind the significant increase in ocean freight rates. Today, USELUCK DOOR（one of China's TOP steel door manufacturer) is here to shed some light on this issue for you.

The ocean freight industry has experienced a significant surge in rates starting in May 2024. This article delves into the primary reasons behind this sharp increase, providing insights into the various factors influencing the global shipping market. By understanding these reasons, businesses can better plan and adapt to the changing dynamics of international trade.

 

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1. Geopolitical Crisis in the Red Sea

One of the most significant factors contributing to the increase in ocean freight rates is the ongoing crisis in the Red Sea. This crisis has forced many ships to detour around Africa, leading to several challenges:

· Extended Voyages: 

The detour around Africa results in longer journeys for vessels, increasing fuel consumption and operating costs.

· Limited Capacity: 

The African route, which originally had limited capacity, is now overwhelmed by the influx of vessels.

· Port Congestion:

Increased transshipment ports and longer voyages have led to severe port congestion, causing delays and container shortages.

 

 

2. Tariff Changes in South America

The second major reason is the impending tariff changes in South America, particularly in Brazil and Mexico. Starting in July 2024, these countries plan to impose additional tariffs on Chinese electric vehicles. This has led to a rush in shipments:

 

· Surge in Shipments: 

Automakers are shipping large volumes of vehicles to South America ahead of the tariffs, even without confirmed orders. For instance, BYD has reportedly shipped over 100,000 vehicles.

· Resource Competition:

The high demand for shipping resources by electric vehicle companies has led to a withdrawal of vessels from other routes, such as West Africa, causing a general increase in freight rates.

· Port Congestion: 

Destination ports are quickly filling up with automobiles, further straining shipping capacities and contributing to higher rates.

 

3. U.S. Election-Driven Tariff Speculations

The upcoming U.S. election has also played a role in the increase in ocean freight rates. Speculations about future tariffs on Chinese goods have caused a preemptive surge in shipments:

 

 

· Stockpiling:

Many importers are stocking up in advance of potential tariff hikes, leading to an early peak season for shipping.

· Increased Investment in South America: 

Chinese companies are redirecting their investments to South America, further intensifying the demand for shipping resources.

 

4. Strategic Actions by Shipping Giants

Lastly, the shipping giants themselves have contributed to the rise in freight rates through strategic actions:

 

· Price Manipulation: 

Taking advantage of the above factors, shipping companies have actively and tacitly raised prices.

· Container Scarcity:

Exporting companies are struggling to secure containers, leading to a scramble and further price hikes.

 

· Unstable ETA:

The Estimated Time of Arrival (ETA) has become increasingly unstable, complicating logistics and planning for exporters.

 

Conclusion

The sharp increase in ocean freight rates starting in May 2024 can be attributed to a combination of geopolitical crises, tariff changes, election-driven speculations, and strategic actions by shipping companies. Businesses involved in international trade need to stay informed about these factors and plan their shipping schedules accordingly to mitigate the impact of rising costs and delays.

By understanding the underlying reasons for these rate increases, companies can better navigate the challenges of the global shipping market and make informed decisions to optimize their supply chain operations.

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