The imbalance between supply and demand in the global container shipping market has triggered alarms in the industry. The latest data show that the Shanghai container freight Index SCFI has been declining for five consecutive weeks, falling by 5.98%, and the index value has slipped to 1772.92 points. In particular, the three major ocean routes in Europe and the United States, their freight rates fell by more than 5%, and the cumulative decline of about 20% in five weeks.

Still, rates are up 75 per cent from December's surge in response to the Red Sea crisis, with increases of up to twice as much on US and European routes, allowing most carriers to remain profitable.

Analysts pointed out that despite the recent decline in the SCFI index, the profit outlook of shipping companies this year is still expected to achieve positive growth, taking into account the offsetting effect of the Red Sea incident on the market excess capacity. As demand enters the off-season after the lunar year, it is expected that freight rates will gradually fall from the high level, and the turnaround of freight prices may appear in late March to early April.

In addition, given that the second quarter will usher in a critical period for the negotiation of US line contract prices, considering that the current US line freight rate has increased significantly compared to the first half of last year, this will help the US line contract price in 2024 to achieve an increase compared to 2023.

In terms of container related news, the Houthis have made it clear that they will not only prevent Israeli-related ships from passing through the Arabian Sea, the Red Sea and the Gulf of Aden, but also further prevent ships from passing through the Indian Ocean to the Cape of Good Hope. In the future, whether the Red Sea crisis will further expand to the Horn of Good Hope region of Africa still needs further observation and analysis.

In contrast to the more optimistic view of analysts, shipping giant Maersk recently warned that the global container shipping market will face the challenge of overcapacity in the next few years, which may reduce freight rates to unaffordable levels. Maersk noted that global capacity grew by 9% last year as new container ships continued to come into service, and is expected to grow by another 11% this year and a further 7% next year. However, CEO Hapag-Lloyd believes that the destocking situation makes the second half of the year more optimistic than previously expected.

From the demand side observation, freight forwarding industry insiders revealed that after the Lunar New Year, market demand did not significantly pick up, and the manufacturing PMI index of major economies continued to decline. In addition to the slight improvement of RCEP countries and regions into the expansion range, the economic recovery of the global economy still needs time. The World Trade Organization also warned that the global economic slowdown and increased uncertainty have put pressure on trade activities, and future trends need to be closely watched.

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