The container shipping lines’ GRIs seem to be sticking as spot rates climb above long-term prices on key routes from China.

General Rate Increases (GRIs) have been a persistent battleground since April this year, as carriers struggle to tackle the supply-demand dynamic and recover sea freight rates. 

However, until now, their efforts have largely been unsuccessful, but August’s GRIs appear to be encouraging for carriers…for now.

2023 has seen the container shipping industry striving to overcome the ‘double whammy’ of declining volumes and escalating overcapacity, leading to lower rates and lost revenues. 

The shipping lines have been implementing GRIs in an attempt to jumpstart rates growth, and recover their lost margins on the critical Asia and China trade-lanes, but have so far failed to make the desired impact.

Their biggest success has been on the Far East to US West Coast route where successive GRIs have been deployed May through to August, pushing spot rates up by 51.5%.

For the Far East to North Europe trade lane, spot rates bottomed out in early May, and from the end of July to the beginning of August, they have risen by nearly 40%.

This change has narrowed the spread between Far East to North Europe and Far East to the Mediterranean to the closest it’s been all year.

It is clear that new GRIs have clearly had an impact, pushing the short-term market above the long-term on all three leading corridors and while the GRIs have fallen short of the lines original ambition, given their lacklustre performance up until this point, the increase will be welcomed by the carriers.

With the traditional peak season for container shipping now looming large, carriers will have their fingers crossed for greater demand at the higher rates. 

However, given that the market has shown significant weakness upon implementation of GRIs earlier in the year, it is still too soon to know if the hikes are here to stay, and how the next round of GRIs (in September) will fare.

After a massive splurge in vessel ordering over the past two years, the new container ship order book is larger than at any other time and with record number of new ships joining the global fleet, the ocean carriers will be getting more aggressive in withdrawing capacity, to support their newly recovered rates. 

The sea freight market from China and Asia is extremely dynamic and actions by carriers often have a profound impact on individual trade-lanes, which is why we work closely with our carrier and network partners in China, to scan the market and identify opportunities for our customers.

If you have any questions or concerns about your Asia supply chain or the developments outlined here, please EMAIL our Chief Commercial Officer, Andy Smith.

Maersk took a sea fright market struggling with excess capacity by surprise a fortnight ago, when it announced its intention to impose a 49% freight all kinds (FAK) general rate increase (GRI) on the 1st August 2023.

The carrier said that to continue offering a broad portfolio of high-quality services it was raising its FAK rate from Asia to the Northern European hubs of Rotterdam, Gdansk and Felixstowe, in a move that would add hundreds of dollars to a TEU.

Despite the lack of any apparent peak season, Maersk's GRI appears to be targeting peak season imports by European shippers. 

Other shipping lines haven’t waited to see if shippers will take Maersk’s bait, announcing their own GRIs, in the days since the original announcement.

The following lines (so far) have announced FAK rate increases in the range of $200-300 per TEU (double for FEU) effective on 1st August 2023:

Maersk | CMA | MSC | HMM | Evergreen | OOCL

Rate erosion on the Asia to Europe trade has been accelerating, virtually halving since the beginning of the year, but it does feel like we’re back in a pre-pandemic market where a carrier announces a key-trade GRI, with the rest tagging along, using the GRI as a starting point for negotiations.

In the past, GRIs which run counter to supply and demand fundamentals have typically struggled to succeed, as demonstrated by trans-Pacific GRIs through the first two quarters, that did little to lift spot rates. 

At this point in the year, rising peak season demand should be exerting upward pressure on rates, but sustained weak demand and huge amounts of available capacity have been suppressing the market. 

The financial impact of a damaging second quarter for carriers is encouraging carriers to follow Maersk’s lead, with their own increases and the desire to bring an end to sub-economic trading may see the lines return to more disciplined volume control, particularly as the new container ship order book currently sits at 7.3 million TEUs.

The equivalent of a third of the current global fleet is due for delivery by the end of next year, with 2.5 million TEUs due in 2023 and the remainder by end of 2024, with the biggest share to be deployed on the Asia-Europe trade. 

Without significant cuts in capacity through an increase in blank sailings and/or idling vessels, many carriers could be in loss-making territory. 

The sea freight market from China and Asia is extremely dynamic and actions by any carrier or alliance can have a profound impact on the competitive behaviour of major trade-lanes, which is why we work closely with our carrier partners, to stay abreast of developments, so that we can protect and identify opportunities for our customers.

If you have any questions or concerns about your Asia supply chain or the developments outlined here, please EMAIL our Chief Commercial Officer, Andy Smith.