High freight rates put pressure on global supply chains – UNCTAD

The cost of global shipping increased sharply in the first half of this year amid unprecedented disruptions on major shipping routes, port congestion and rising operating costs. This is stated in a report by the United Nations Conference on Trade and Development (UNCTAD).

In 2023, seaborne trade grew by 2.4% – to 12.3 million tons, beginning a recovery after 2022. However, future prospects remain uncertain. This year, UNCTAD predicts a 2% year-on-year increase in its volumes, driven by demand for commodities such as iron ore, coal and grain, as well as containerized cargo.

As noted, major shipping routes have experienced significant disruptions this year, resulting in delays, diversions and higher costs.

By mid-2024, traffic through the Panama and Suez Canals fell by about half compared to the peak. This was caused by low water levels in the Panama Canal and the security crisis in the Red Sea region that affected the Suez Canal.

In maritime trade, cargo diversion around the Cape of Good Hope increased. Longer routes led to increased port congestion, higher fuel consumption and insurance premiums, etc. By mid-2024, the re-routing of ships from the Red Sea and the Panama Canal increased global demand for ships by 3% and demand for container ships by 12% compared to what it would have been without this factor. This has put significant pressure on global logistics.

Large port hubs such as Singapore and major Mediterranean ports are facing additional pressure due to the growing demand for transshipment services due to changes in ship routes.

The UNCTAD notes that urgent actions are needed to stabilize freight markets, including monitoring trends, strengthening international cooperation to reduce disruptions at key points, investing in port and infrastructure modernization, diversifying shipping routes, etc.

According to UNCTAD, last year the dry bulk freight market experienced significant volatility, but rates were generally lower than in previous years.

The Baltic Exchange Dry Index (BDI), which reflects the cost of shipping dry bulk cargo (coal, iron ore and grain), averaged 1,398 last year. This is lower than the average for 2022 (1,930) and close to the 10-year average (1,318).

In the first half of 2024, the BDI averaged 1,867, compared to 1,142 in the same period in 2023. UNCTAD predicts that by the end of this year it will grow by 34.5% compared to the average last year. As noted, these trends reflect the existing obstacles to navigation in the Red Sea and the Panama Canal. In addition, there are supply and demand factors, such as demand for bulk cargo from China and potential weather-related disruptions affecting key exporters (Australia, Brazil and Indonesia).

At the same time, by mid-2024, the Shanghai Container Freight Index (SCFI) had more than doubled compared to the end of 2023 due to longer distances, higher fuel consumption, and rising insurance premiums.

Usually, the third quarter is traditionally strong for the dry bulk market, Seatrade Maritime News writes, but in October it experienced an unseasonal decline, which was probably delayed due to fundamental problems in China’s steel industry. This was mainly due to the weakness of the Capesize segment (spot prices fell from $30 thousand per day at the end of September to $15 thousand per day in four weeks).

Analysts at Breakwave Advisors believe that the significant decline in the Capesize sector has already ended, and additional pressure factors are limited. November is a strong month for spot charter rates for this class of vessels, so there is potential for a sharp reversal and the likelihood of a return to the level of $20 thousand per day.

Optimism about the last two months of the year is based on winter weather, which will cause delays in the Atlantic market, as well as on the traditional desire of mining companies to ship more products by the end of the year.

Analysts at Maritime Strategies International are less optimistic, but also expect that by the end of the year there is an opportunity for dry cargo rates to recover in general due to positive market conditions for bauxite and grain, as well as still high coal imports from China.

As GMK Center repored earlier, global iron ore exports in January-September 2024 increased by 5% compared to the same period in 2023 – to 1.2 billion tons.