Global freight rates: No sign of relief

The risk of domestic port disruption due to the COVID-19 until the end of 2021 may put upward pressure on domestic freight rates. 

Reason for global shipping rates rally

For global container shipping, port congestion is one of the main reasons for the shipping rates rally. The pandemic has severely deteriorated transport efficiency through berthing delays, increased container dwell time, and container shortage. In fact, port bottlenecks have happened in many major terminals in Northern America, Northern Europe, and Eastern China, impacting global carriers’ capacity and escalating freight rates. 

In 8M 2021, the average 40’ container freight rate for routes originating from Shanghai to New York, Shanghai to Los Angeles, and Shanghai to Rotterdam increased by 48%, 69%, and 222% YoY, respectively. So far, the World Container Index (WCI) is twice as much as the rate at the beginning of 2021- USD 9,421/FEU on 16 Aug 2021 and USD 4,359/FEU on 1 Jan 2021.

Meanwhile, shipping liners have increasingly taken part in charter contracts to compensate for carrying capacity shortages. Charter rates rose rapidly in a rather similar fashion with shipping rates. According to Harpex Index, the average 6M-to-12M time charter rate for 1.100 TEU and 1.700 TEU on 13 August 2021 were respectively USD 35,000/day and USD 44,000/day, increasing by 17% and 10% in comparison with rates on 23 July 2021. Harpex Index on 13 August reached 3,554 points, triple from the beginning of 2021.

A threat of further domestic port disruptions 

In the domestic container shipping market, freight rates in 1H2021 have not been as volatile as seen in the international rates owing to stable demand and fleet capacity. The demand for domestic liners has been resilient despite the pandemic, as evidenced in the growth rate of domestic container throughput at Vietnam seaports. For 7M 2021, domestic volume reached 5.1 Mn TEUs, growing by 26 % YoY. 

In fact, rate increase/decrease by specific routes owning to imbalanced demand between North-South and South-North directions lead to relatively stable domestic rates in general (e.g. rising rate for Hai Phong-HCMC route while the lower rate for HCMC-Hai Phong). Besides, shipping lines have enough capacity to meet domestic demand. Vietnam’s container fleet currently includes 36 vessels with an average capacity of 805 TEU, in which 32/36 vessels participate in domestic transport and four vessels specifically operate in short intra-Asia routes (e.g. Hai Phong – Hong Kong and HCMC – Singapore). Operations of Vietnamese container vessels running Intra-Asia routes seem intact, despite international port congestion mentioned above, owing to its nature of short voyages and rapid turnaround time.

However, VCSD said there would be still the risk of domestic port disruption due to the COVID-19 until the end of 2021, which may put upward pressure on domestic freight rates. In early August, Cat Lai, the biggest terminal for export-import containers in the Southern region experienced container congestion as the result of a reduction in the number of port workers and stagnant productivity of corporations due to social distancing. Although it has had no impact on main ports for domestic containers (e.g: Binh Duong, Dong Nai, Sai Gon, Ben Nghe, VICT…), the threat of further port disruptions is still a matter of concern.