[Freightos Weekly Update] Ocean rates ease on early peak season cooling and capacity additions

Key insights:

1. The US-Iran conflict may be expanding to the Red Sea as the Houthis announced the Bab el Mandeb Strait is closed to Saudi-linked ships.

2. The closure is likely a bigger threat to oil than containers, as Saudi Arabia is diverting much of its oil through Jeddah via pipeline and then Red Sea tankers; for containers, the main risk is that carriers reverse recent steps back toward Red Sea transits, and that regional carriers still transiting face disruption.

3. Fuel costs are rising again: bunker prices are up 12% since early July erasing a month of declines, but even so container rates are easing slightly for the first time since April as carriers add capacity and an early peak season begins to unwind.

4. Port congestion in the Far East may be absorbing some of the added capacity and limiting downward rate pressure, with Typhoon Bavi causing vessel bunching in Shanghai and Ningbo, multi-day waits in Qingdao, and delays across eastern China, Taiwan, South Korea and the Philippines.

5. The White House will likely succeed in rolling out Section 301 tariffs of 10%-12.5% to replace Section 122 10% tariffs by or just after the July 24th deadline, keeping duties roughly level for most trading partners; separately, investigations into excess capacity violations by sixteen countries are underway but findings haven't been released, with some speculating the administration will wait until after midterms before pushing tariffs back toward IEEPA levels.

6. In air cargo, escalating Middle East tensions are delaying some planned carrier returns to the region, keeping upward pressure on Middle East rates; China-Europe prices are down 7% since the EU's July 1st de minimis suspension as volumes ease, with carriers reducing capacity alongside volumes. The pace of demand decline is varying among EU member states though, as some are requiring higher upfront deposits than others.

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) decreased 6% to $7,067/FEU.

• Asia-US East Coast prices (FBX03 Weekly) stayed level at $9,102/FEU.

• Asia-N. Europe prices (FBX11 Weekly) decreased 2% to $5,740/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) decreased 4% to $6,852/FEU.

Air rates - Freightos Air index:

• China - N. America weekly prices decreased 13% to $5.87/kg.

• China - N. Europe weekly prices decreased 1% to $4.25/kg.

• N. Europe - N. America weekly prices stayed level at $1.93/kg.

Analysis

The US and Iran have traded strikes for ten days straight, with Iranian actions also targeting neighbor states and area vessels, and missile attacks reaching as far as US positions in Jordan. Traffic through the Strait of Hormuz has again slowed to a trickle, and the conflict has now extended to the Bab el Mandeb strait as well.

Saudi Arabia and the Houthis have had a ceasefire in place since 2022, but tensions increased recently as Saudi Arabia fired at Sanaa airport, preventing a flight from Iran to land. In response, the Houthis, who have not attacked passing vessels since late last year, announced that the Red Sea channel is now closed to all Saudi-linked vessels and ships calling at Saudi ports.

The Saudis have diverted a significant share of pre-war oil flows away from the Strait of Hormuz via pipelines reaching Jeddah Port in the Red Sea, where volumes continue on by tankers passing Yemen on their way east. Container carriers are also diverting some Gulf traffic through Jeddah, though most major carriers get there via the Mediterranean and northern Red Sea, still avoiding the Houthi choke point. So the new closure would likely be a bigger blow to energy flows than to the container market, but could see carriers like CMA CGM and Maersk backtrack on recent steps back toward Red Sea transits, as well as disrupt regional carriers who were still passing through the Bab el Mandeb for Saudi calls.

Oil prices are facing upward pressure from the recent deteriorations. Crude prices are now up 20% since an early July low and are back to mid-June levels. Bunker prices are up 12%, erasing more than a month of decline too, with jet fuel rates up 25% and back to mid-May levels – 50% higher than the pre-war baseline.

But even with fuel prices rising, container rates are easing – slightly – for the first time since April, as carriers add capacity to some lanes and an early unwind from an early peak season begins.

Carriers had announced significant GRIs and PSSs for July 15th, but instead spot rates declined slightly across the major east-west lanes, with Asia - N. America East Coast prices staying level. Daily rates so far this week show West Coast and Asia - Mediterranean prices continuing to slide. That carriers decided against the mid-month hikes suggest that recent projections of cooling demand after a red hot, frontloaded, June and early July may be playing out now.

This likely demand decrease is coinciding with the arrival of extra loaders sent to service the surging demand that are increasing capacity, and contributing to the flat or easing rates as well. The capacity aspect may explain the slight discrepancy between transpacific West and East Coast rates, as more vessels were added to West Coast services.

At the same time, serious port congestion is absorbing capacity in the Far East, which may mitigate the degree of downward pressure there otherwise would be on spot rates via the current demand dip and capacity additions. Delays at major origin ports, initially caused by surging volumes, have increased from bouts of bad weather, including from last week’s Typhoon Bavi.

The storm temporarily shut down several major ports, leading to serious vessel bunching in Shanghai and Ningbo, multiple-day waits in Qingdao, and delays at other ports in eastern China, Taiwan, S. Korea and the Philippines. Some carriers are omitting port calls and diverting volumes to alternatives in the region, which will then move on by transhipment and also contribute to delays. A recent toxic gas leak in Antwerp also shut down operations at several terminals temporarily.

One reason for the US ocean import pull forward was the July 24th tariff deadline at which point 10% global Section 122 tariffs will expire. The White House is working to replace those with 10% - 12.5% Section 301 tariffs on sixty trading partners targeting forced labor issues. Experts expect the administration will be able to roll out those tariffs – which keep duties about level with the current status quo – by or soon after the deadline.

The government has also launched 301 investigations into excess capacity violations by sixteen countries. But the USTR has still not released its findings for this inquiry or set a date for public comments, leading some to speculate that the government intends to wait until after midterm elections to move forward with these duties which could push tariffs back to IEEPA levels. President Trump also announced that he will put 50% tariffs into effect on about 5% on Canadian exports in thirty days using a different section of the US trade law.

In air cargo, increased tensions in the Middle East have some international carriers pushing off planned returns to the region, helping to keep some upward pressure on Middle East rates. Freightos Air Index South Asia - Middle East rates were about level at $2.93/kg last week, but are about double pre-war levels.

China - Europe prices were down 7% compared to the end of June last week, just before the EU suspended its de minimis exemption, with daily rates this week continuing to trend downward. Alongside reports of volume decreases from the rule change, carriers are reducing capacity too, likely preventing a more pronounced rate decline. At the same time, different EU member states are approaching fee collection differently, with those requiring larger upfront deposits seeing a sharper drop in volumes and capacity compared to countries with more relaxed policies.