[Freightos Weekly Update] Container rates jump another $1k/FEU - but is demand peaking?

Key insights:

1. Yesterday's Iranian strikes and US retaliations mark the most serious escalation since the ceasefire began, with Trump suggesting the ceasefire may be over; the Gemini Cooperation had just announced a gradual Red Sea return, which could now be put on hold again.

2. Crude oil prices have fallen back to pre-war levels despite periodic Hormuz disruptions, with supply recovering faster than expected and raising concerns of oversupply; bunker and jet fuel prices are easing but remain 20-30% above pre-war levels, as refined products take longer to normalize than crude.

3. Falling fuel costs are not yet showing up in container spot rates, as peak season demand continues to push rates higher – though the early start to this year's busy season may mean volumes are already near their peak.

4. July 1st GRIs and PSSs stuck, adding about $1,000/FEU across major east-west lanes and bringing total transpacific increases to more than $3,000/FEU since late May; West Coast rates are around $6,700/FEU and East Coast rates are leveling off near $9,000/FEU.

5. Asia-Europe rates have followed a similar trajectory despite record capacity on these lanes, with N. Europe at about $5,400/FEU and Mediterranean passing $7,000/FEU; carriers have another about $2,000/FEU in mid-July increases planned, but like on the transpacific, early demand peaking could limit how much sticks.

6. Rolled cargo backlogs and significant congestion at major hubs including Shanghai, Ningbo, Yantian, Singapore, Busan and Colombo could slow any rate unwind even if new bookings begin to ease.

7. Air cargo rates have eased from wartime highs as fuel costs fall, though the Freightos Air Index global benchmark has been steady since late May and remains well above pre-war levels; China-N. America held at $6.56/kg while China-Europe fell 7% to $4.21/kg, possibly reflecting softer demand following the EU's July 1st de minimis suspension.

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) increased 8% to $6,687/FEU.

• Asia-US East Coast prices (FBX03 Weekly) increased 8% to $8,635/FEU.

• Asia-N. Europe prices (FBX11 Weekly) increased 10% to $5,384/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) increased 11% to $7,100/FEU.

Air rates - Freightos Air index:

• China - N. America weekly prices stayed level at $6.56/kg.

• China - N. Europe weekly prices decreased 7% to $4.21/kg.

• N. Europe - N. America weekly prices decreased 1% to $1.98/kg.

Analysis

Yesterday’s Iranian strikes on vessels and states in the region, and US retaliations mark the most serious of a series of military exchanges and escalations since the start of the ceasefire, with President Trump saying the latest Iranian attacks may signal the end of the ceasefire altogether. The relative stability in the region prior to these attacks spurred the Gemini Cooperation to announce the coming restart of its gradual return to Red Sea transits – though the recent deterioration could put this resumption in jeopardy once again.

The periodic drone and missile attacks have led to multiple start and stops of traffic through the Strait of Hormuz, and daily transits are still well below pre-war norms. Nonetheless, crude oil prices have fallen back to pre-war levels and the surprising speed at which global oil supply is recovering is even leading to concerns of the market becoming oversupplied.

A ceasefire collapse could threaten the success of a sustained oil recovery, though alternatives to oil passing through the strait are driving a good share of current supply. Bunker and jet fuel prices are easing too, but remain 20% - 30% above pre-war levels as refined petroleum products dependent on crude supply levels will take longer to normalize.

But again this week, falling fuel prices are not being reflected in container spot rate behavior as peak season demand continues to push freight rates higher – though the early start to this year’s busy season may also mean we are already reaching peak volumes.

The US Trade Representative started hearings this week as part of the process required to roll out new Section 301 tariffs before Section 122 tariffs expire on July 24th. This coming tariff deadline is likely one driver of frontloading and the early peak season start on the transpacific. But spiking demand and rates on Asia - Europe lanes where tariffs are not a factor suggest that July BAF hikes and Q3 manufacturer price increases were also major factors towards the overall early demand surge.

July 1st GRIs and PSSs have stuck, pushing rates up $1,000/FEU across the major east-west lanes for a total increase of more than $3,000/FEU on the transpacific trades since the end of May. Prices to the West Coast climbed to about $6,700/FEU last week with East Coast rates up to about $8,700/FEU but leveling off at $9,000/FEU this week.

Carriers are adding capacity to the transpacific to service the rush of demand, but some forwarders think frontload-driven demand may already be peaking. Easing demand, together with capacity additions, could mean that the significant mid-month rate increases planned by some carriers may not take, and prices could even start easing later in the month.

Asia - Europe rates have behaved similarly since the end of May, despite record levels of capacity deployed on these lanes, with Asia - N. Europe rates up to about $5,400/FEU last week and prices to the Mediterranean passing the $7,000/FEU mark. Carriers have additional increases of about $2,000/FEU slated for mid-July on these lanes too, though like on the transpacific, the early start to the demand surge has many anticipating the demand side could start easing soon.

For all the major east-west lanes though, rolled cargo backlogs as well as growing significant congestion at major hubs including Shanghai, Ningbo, Yantian, Singapore, Busan and Colombo could slow the speed of the rate unwind even if the rate of new bookings slow.

In air cargo, easing fuel prices have contributed to cargo rates down from war time highs, though the Freightos Air Index global benchmark has been steady since late May and well above the pre-war level. China - N. America prices were stable at $6.56/kg last week. China - Europe rates which were steady in June fell 7% to $4.21/kg last week, possibly reflecting some drop in demand as the EU’s de minimis suspension took effect.