Supply chain bottlenecks ease as market balance returns

Freight forwarder Dimerco, reports that the Purchase Managers’ Index, was steady at 50.9, with a value of over 50 points indicating growth. However, S&P’s Global Market Intelligence, reported that June output slowed, “but still marked the second strongest month over the past year.”

Even so S&P’s Global PMI Composite Output Index decreased to 52.9 in June from 53.7 in May.

As such, Alvin Fuh, VP – Ocean Freight at forwarder Dimerco Express Group, said that freight rate increases have not been driven by demand, but by the Red Sea diversions.

“Freight rates could deteriorate as quickly as they have increased recently. It's important to note that BCOs and NVOs might need to wait two months or longer to benefit from lower rates, as carriers would need time to adjust their schedules and redeploy vessels,” said Fuh.

Drewry Shipping Consultant’s Principal Consultant Supply Chain Advisors Hind Chitty believes the change in the market is coming, though the statistics on demand remain uncertain.

“The recent decline [in freight rates] is likely due to carriers expanding capacity on transpacific and Asia-Europe services (as demand and spot rates surged over the last two months). This drop may indicate that peak rate pressure is easing,” he said.

Deployed capacity is expected to increase by 5%, in August, compared to July, mainly due to a 35% reduction in blank sailings, said Chitty, with carriers reducing cancellations from 70 to 52 sailings.

Related:Xeneta sees first crack in container carrier spot rate consensus

Listen to a podcast on the outllook for the container shipping market 

Eleanor Hadland, Senior Ports and Terminals Analyst at Drewry’s said the strong relationship between hub port congestion and blank sailings remains and the reduction in blank sailings will reduce the pressure on terminal operations.

Hadland added: “This period of congestion has been fundamentally different to the Covid-led congestion of 2021/22.”

She said that that transhipment ports have been the most affected, but as “transhipment traffic is less captive to a specific port then carriers have responded by undertaking relay movements at less congested ports on the network. For example, carriers have increased transhipment at Kaohsiung due to congestion in SE Asian ports.”

Drewry reports that most container terminals in Asia are now congestion free, in the US only Los Angeles and Long Beach have some congestion, however, major North European ports are still experiencing some congestion.

A key port in bringing relief from congestion is Singapore and Dimerco said that this crucial link in supply chains is now largely congestion free.

Related:Container freight rates take a breather

“Port congestion in Singapore has eased, with the waiting time for berthing reduced from five days to two days. If this improvement continues through August, fewer vessels will omit the port, leading to more sailings from Singapore. This increase in vessel calls should help maintain or slightly reduce freight rates for August. Despite the improvement in August, shippers should still plan their import and export shipments in advance,” concluded Dimerco.