According to Sea-Intelligence’s latest analysis, spot rates have continued to soar this week, making shippers concerned about how high rates may persist.
Simply said, prices will rise until a significant number of shippers can no longer afford to send their goods. This will reduce container demand until it meets the available vessel capacity.
However, the actual level at which this occurs is unknown. Sea-Intelligence noted that the easiest answer to ‘how high can rates go?’ would be to point to the maximum level seen during the pandemic.
The analyst company revealed that this does not account for the longer round-Africa sailing lengths that did not exist before the pandemic.
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To account for greater sailing lengths, Sea-Intelligence examined rates in proportion to distance sailed, i.e. US cents/FFE per nautical mile travelled. Figure 1 depicts the epidemic situation.
According to Sea-Intelligence, while Figure 1 is just a portrayal of historical reality, it does establish a precedent, namely that during times of acute hardship, freight prices per nautical mile can rise dramatically.
Alan Murphy, CEO of Sea-Intelligence, said: “If we extrapolate the data from Figure 1 as an indication of how high the market can indeed go based off the pandemic surge in rates, we can now apply the new (longer) sailing distances and calculate how high the spot rates per FFE could possibly go, if the current crisis persists.”
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Figure 2 shows the result of this calculation, and now, you are able to examine the scenario for shippers.
“If the rate paid per nautical mile reaches the same level as during the pandemic, we will see spot rates of 18,900 USD/FFE from Shanghai to Rotterdam, 21,600 USD/FFE from Shanghai to Genoa, and 2,200 USD/FFE on the back-haul from Rotterdam to Shanghai,” added Murphy.
“This is not to say that the rates couldn’t go any higher, this is just to say that rates per nm go as high as during the pandemic, then spot rates would go as high as shown in Figure 2.”
