What is Behind the 40% Drop in Freight Rates? Shipping Lines Take Action

This year, freight rates on major global trade routes have plummeted dramatically. The Shanghai Containerized Freight Index (SCFI), a key indicator of the shipping market, fell from 2,505.17 points on January 3 to 1,436.30 points by March 7—a staggering 42.67% drop. Routes to the U.S. West Coast, U.S. East Coast, and South America were hit the hardest, with declines ranging from 45% to 54%. In response, shipping lines are taking decisive measures to stabilize the market.

Measures to Curb Falling Rates

• Capacity Cuts: Shipping lines have reduced sailings by 7% over the next five weeks and are deploying smaller vessels or delaying new routes.

• Potential Ship Idling: If these measures fail to stabilize rates, further ship idling may be implemented.

Projected Cancellations
According to Drewry, 47 out of 715 scheduled sailings on major Europe and U.S. routes will be canceled in the next five weeks:

• 43% of trans-Pacific eastbound sailings.

• 30% of Asia-North Europe and Mediterranean sailings.

• 28% of trans-Atlantic westbound sailings.

Industry Adjustments

• MSC: The industry leader has exited the trans-Pacific Mustang route and redeployed its largest 24,000-TEU vessels from Asia-North Europe to Mediterranean and West Africa routes.

• Ocean Alliance: Delayed the launch of a new Asia-North Europe route originally scheduled for March.

• Premier Alliance: Expected to postpone two trans-Pacific routes set to begin in May.

Capacity Overhang
Data from MDS Transmodal shows a 5% reduction in trans-Pacific capacity in March, with total capacity down by 81,000 TEUs compared to February. However, capacity remains 16% higher than the same period last year. This oversupply, coupled with a less than 10% increase in global cargo volume since late 2020, has exacerbated the imbalance.

Rate Declines by Route

• Europe: Rates dropped from 2,851/TEU∗∗onJanuary3to∗∗2,851/TEU∗∗onJanuary3to∗∗1,582/TEU on March 7, a 44.51% decline.

• U.S. West Coast: Rates fell from 4,997/FEU∗∗to∗∗4,997/FEU∗∗to∗∗2,291/FEU, down 54.12%.

• U.S. East Coast: Rates decreased from 6,481/FEU∗∗to∗∗6,481/FEU∗∗to∗∗3,329/FEU, a 48.13% drop.

Outlook and Challenges

• Tariff Concerns: Industry experts worry that tariffs could further suppress cargo flows.

• Future Capacity Cuts: With new vessels entering service, the oversupply issue is expected to worsen, potentially leading to more ship idling.