SE Asia faces shipping crisis as container shortage drives freight rates to record highs
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The global supply chain is experiencing turbulence as South-east Asia grapples with a shortage of vessels and containers, driving freight rates to unprecedented highs. Recent reports indicate that businesses across Malaysia, Thailand, Vietnam, and other neighbouring countries are facing significant challenges in securing shipping capacity, leading to disruptions and soaring costs.
What is pushing freight rates higher?
Several factors, alongside the ongoing Red Sea crisis, are contributing to the current supply chain disruptions. Chinese exporters, reacting to rumors of potential US duties, are reportedly hoarding containers to maximize shipments to other markets. This shift away from the US market has caused a surge in traffic, worsening congestion at key ports in Vietnam, Singapore, and other regional hubs. As a result, space availability for shipments has decreased, intensifying the scarcity of vessels and containers.
Impacts on South Asia
Bangladesh
Spot rates for ocean freight containers to and from Bangladesh have been increasing since May raising fears that they might escalate to levels observed during the Covid pandemic when rates had tripled. It is worth noting that Bangladesh, reliant on imports, particularly of ferrous scrap, sources a significant portion of its scrap from East Asia.
Shipping industry leaders in Bangladesh attribute the rate surge to Red Sea tensions and global port congestion, causing voyage delays. Vessels are rerouting away from the Red Sea due to Houthi militia attacks, adding 9-14 days to Asia-Europe trips via the Cape of Good Hope, squeezing the shipping industry capacity by at least 20%.
These rising spot rates have significant implications for Bangladesh's trade, as importers face increased costs for imported goods, while exporters experience reduced profitability due to buyers adjusting to higher rates.
Currently, a 20-foot container between Bangladesh and China costs at least $1,500 per container, marking a 100% increase since early May. Similarly, rates between Bangladesh and Singapore have increased by 50% to $300 per container for a 20-foot container. The Bangladesh-Colombo route has also surged by over 15% to $230 per container.
Additionally, pirate attacks off Somalia's eastern coast have increased, with recent incidents including the attack and release of a Bangladeshi ship after a ransom was paid.
International media reports show that rates from the Far East to various destinations have surged significantly since April, with increases ranging from 21-29% compared to last year.
India and Pakistan
As of now the rising freight rates have not had a major impact on Indian imported scrap prices as India's primary source of ferrous scrap is the US, Europe, Australia and Middle East. However, it is noteworthy that current freight levels to India, post the Red Sea crisis, have been on the higher side.
Indian buyers anticipate there will be a further increase in freight rates going forward.
A trader informed BigMint, "Market sentiments must change as we confront the issue of rising freight rates which have dampened suppliers' interest in new bookings. The supply side is struggling to find any profit margin on the booked containers."
On the other hand, a few market participants are speculating that the impact of the freight rate will be reflected in the price at the loading point, aligning with buyer expectations.
In the coming weeks, stainless steel scrap imports into India may see notable impacts, particularly as the South-east Asian region contributes roughly 36-40% of India's stainless steel scrap imports.
Additionally, looking at the non-ferrous scrap and semi-finished segments, the imports of zinc and lead might also witness be impacted: India imports around 40-45% from the South-east Asian region.
Meanwhile, the Pakistani market has not experienced any impact on scrap prices from the ongoing rise in freight rates, as trading activities in the country remain sluggish due to weak demand from the steel sector.
Impact on other regions
Meanwhile, freight rates have surged significantly over the past 12 months, with rates from the Far East to the US West Coast up by 214% and rates from the Far East to the Mediterranean increasing by 100%.
A prominent shipping company has announced that it is encountering severe terminal congestion at ports in the Mediterranean and Asia, leading to considerable delays in its vessel schedules. Consequently, the company has decided to cancel two westbound sailings originating from China and South Korea, which were scheduled for early July.