BAROMETER. Freight rates continued to climb in May, more because of the geopolitical situation than excessive demand. The turnaround in the market promises to be violent, however, given the threat posed by overcapacity.
The big shipping companies made a profit in the first quarter, thanks to an increase in freight rates. In the first half of the second quarter, shippers continued to find themselves under pressure, as they faced not only a further increase in freight rates but also difficulties in getting access to capacity on certain shipping routes, like those from Asia to Europe.
The bubble could burst quite quickly, however. Certainly, the geopolitical situation remains unstable. The Houthis claim they are able strike in both the Mediterranean and the Indian Ocean, which is maintaining market tension. Their attacks are continuing, moreover, to prevent container ships from returning en masse to the Suez Canal. The situation remains tense, too, in the Strait of Hormuz. The MSC Aries, the container ship which was seized by the Iranian authorities in April, was still being detained, as we went to press.
At the same time, however, from an operational point of view, the resurgence of overcapacity looks to be inevitable. It is still too early to say what the consequences will be in terms of costs, but the general mood and economic situation suggest that there will be changes before too long. Overcapacity will burst back into the foreground, probably with devastating consequences.
Shippers try to keep control
According to the time-honoured formula, the market is always right, but, currently, most players consider that there is too much speculation and that the Covid phenomenon, which saw freight rates go into five figures, is unlikely to be repeated.
Importing shippers need to reconstitute their stocks but they will not do this in any way and at any cost. They are going to use other methods, delaying orders or taking delivery from suppliers closer to centres of consumption. The move to "nearshoring" is already well under way, moreover.
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