Rates 2024: Charting a Route Through Uncertainty

2024 so far has been proof that, for supply chains, any new normal brings its own unique version of abnormality. 

After months of sluggish demand worldwide, a pick up in consumer spending in the US and the UK has come alongside new squeezes on global shipping as carriers react to disruption. The ongoing Red Sea crisis, in particular, has cast wide ripples, with slower passages eating up capacity and throwing key ports into disarray. 

As was the case through the pandemic, as well as the low rates-low demand period that followed, every new logistics scenario requires supply planners to learn, adapt and implement in a new environment with new rules. 

In our recent webinar, Zencargo’s VP Ocean Procurement Anne-Sophie Fribourg and Trade Lane Director Catia Fernandes examined the currents driving rates and explained how shippers can navigate them.

The green shoots of growth meet a deepening capacity crunch

Global growth is predicted to be 3.2% in 2024, while retail sales in the US and EU are expected to remain stable. Global volume is projected to increase by 5-6%, with demand rising rapidly at an estimated 15.0% in 2024.

At the same time, the Red Sea crisis has entered its own peculiar equilibrium. While Houthi rebels in the region show no sign of abating their attacks on shipping, the shipping lines have solidified their approaches into something approaching habit. Rerouting has now become standard, adding 10% to average sailing distances – however, it has taken months for the true structural impacts to bullwhip their way down the supply chain. 

• We see major congestion in Asian ports and key transshipment hubs like Singapore and Colombo, adding pressures to main trade lanes from Asia.
• This has impacted secondary trades such as India and Bangladesh as carriers are facing equipment challenges as well as space issues, as assets are tied up in slow turnarounds portside.

Carriers are limited in their ability to add capacity

Shippers have understandably got a head start on, with peak season starting at the end of April on the Transpacific and Asia – Europe trade. Carriers have responded by adding vessels, with global container capacity growing by 10.6% between June 2023-2024. The problem is that, as during the pandemic, these new vessels are quickly tied up in slower routes as well as slow  turnarounds in congested ports.

For example, on the Asia – Europe trade lane, 24% more capacity was added on 1st June 2024 compared to 2023 but was quickly absorbed.

The result is that, even though carriers are eager to service the demand in the market, there are challenges in getting both vessels, and the equipment to fill them, to the right places at the right times.

The results are as stark as they are familiar from only a few years ago – much higher rates.

• +135% Far East – North Europe
• +158% Far East – US East Coast
• +203% Far East – US West Coast

With no clear end on the horizon, shippers will need to change their approach to planning and risk management, or face steep penalties from the market.

The new landscape for risk

While the Red Sea crisis is the simplest driver to point to, rates remain stubbornly complex in their makeup and impact. The reality is that there are a wide range of risks to bear in mind when planning your rate strategy. The main ones to be be aware of include:

• Carriers are now experts at managing the market: Years of rapid change have now shown carriers not only the importance of managing short term rate conditions, but also given them the lessons they need to do it. Expect shipping lines to react fast to any changes with blanked sailings and GRIs.
• The macro and micro-economy remain resilient: Despite multiple shocks in the last four years – and since the 2008 crisis, the global economy as a whole has shown itself remarkably solid. The upside is that demand, in the long term, remains relatively constant, provided shippers can manage shorter term pressures.
• Global politics remain uncertain: From global conflicts, to elections in the UK and USA, 2024 is ripe for opportunities for change. Even with the current slate of uncertainty, any resolution would still take months to trickle down – time in which plenty more could transpire.
• Infrastructure is under pressure: Ports, and those who man them, have had to endure constant change in recent years. The underinvestment in labour and infrastructure are now making themselves seen clearly, from the looming threat of an International Longshoremen’s Association (ILA) strike on the East Coast of the USA, to space issues in Transshipment ports that can spread quickly.
• Green targets remain:  Rerouting around the Cape of Good Hope, as well as vessel acceleration and extra ships, have contributed to an increase in emissions of 42% per vessel and 67% per fleet for a weekly service. Given that lines were aiming to reduce emissions by 15% on trades like Asia-Europe in 2024, don’t be surprised if regulators ramp up pressure.
• The wild card of Black Swan and extreme climate events: While water levels in the Panama Canal have improved, letting more traffic through, higher temperatures across the board and weather issues around the Cape of Good Hope show just how vulnerable supply chains are to a fast-changing climate. 

All the above need to be factors in the way you plan and execute your 2024 supply chain strategy. And that means working with a freight forwarding partner who can adapt to change and uncertainty. 

Choosing the right partner to support you

Tender season is a chance to put your current, or prospective, freight forwarders to the test before you’re tied into a new contract. Given the pressures of recent years, many forwarders have had to raise their game across the board, from the technology they use to track and optimise shipments, to the way they communicate with partners. 

The way you approach your tender should test how much they have learned. Key questions to ask include: 

• What are BCOs doing? Ensure they have a view on how larger shippers – up to 50% of volumes – are affecting trends in the market, and how they can safeguard the interests of your business against BCOs staking capacity or volumes.
  
• How will the shipping alliances impact my supply chain in 2025? Shifting alliances among carriers have also changed the scope for competition, especially with the new Gemini Alliance. Carriers are now looking to distinguish themselves from one another, focusing on areas such as reliability, price, or integration of services. Make sure your forwarder can match you to the right lines.
  
• How do you ensure high service levels and on-time deliveries? The hard question, but the right one. The truth is that disruption hits everyone – the difference is that forwarders with the right data, communication and partnerships have more scope to adapt and still reach your targets.
• Do you offer index linked rates options? For shippers looking to catch the best the market has to offer on rates, index linked rates can provide a balancing effect. Instead of being tied into what can be a great or a bad deal, depending on market shifts, you can instead go for a fair deal that tracks broader trends. 
• Are you working with multiple carriers? Working with a range of partners provides flexibility not just for finding capacity, but also for tailoring your service needs according to respective carrier specialisms.
• Will the current environment have an impact on your 2025 carrier policy? Ensure your partner is planning not just for the current environment, but also building in contingency for shifts in service models or alliances.

How Zencargo is planning for 2024

At Zencargo, we’ve made adapting to change a key part of our customer offering. Our most important asset when working with some of the fastest-growing businesses is the ability to turn our customers’ needs into strategies that can stand up to the modern logistics market

The core of our 2024 strategy is:

• Building an agile network: Our teams of on-the-ground experts are constantly monitoring rates and operating conditions in key markets. On a daily basis, evaluate the services and challenges available to revise our customer offerings and deliver the maximum value possible. 
• Developing innovative solutions: We’re deepening our existing relationships and engaging with new ones to offer comprehensive deals across the alliances, with tailored contracting and rate options for customers.
• Prioritising service level agreements (SLAs): In a dynamic market, every node of the supply chain counts. That’s why we’re integrating granular SLAs with carriers to ensure details such as booking confirmations, bill issuance and scheduling are relayed to our team and our customers in real-time to plan faster and execute accurately.
• Committing to sustainability: We’re focused on delivering green results for our customers, as well as their stakeholders and customers. We’re developing green ocean and multimodal solutions across all our routes to give shippers more choice and more impact.

If you’re looking for a partner who can support you through 2024, and beyond, with strategies that fit your needs, why not book a call with our team?