Ocean Freight Market Update
The new ocean freight contract season has started, effective May 1, 2025 to April 30, 2026. This season has started off in a deflated state as increased tariffs and continued uncertainty as it relates to future trade policy. The result has been cancelled shipments and decreased volumes, keeping vessel utilization for ocean carriers very low.
While May is often the ramp up period prior to the traditional peak season of seasonal and holiday goods, continued concern remains as to whether there will be a rebound in Q3. Ocean carriers have started to cope with the drop in volumes, especially China to the United States, by voiding sailings, utilizing smaller vessels in their fleet, and implementing General Rate Increases (GRI) to compensate for lost revenue and pushing a supply and demand scenario. When successful, this process will often assist the carriers to keep ocean freight rates higher and improve vessel utilization to mitigate carrier cost constraints and efficiencies. As a May 1st General Rate Increase was implemented across the Transpacific Eastbound Trade, one week later, this rise in cost appears to have stuck for the time being. The coming week or two will be telling as to whether these rates erode or remain steady.
Both General Rate Increases and Peak Season Surcharge (PSS) had been announced with effective dates during the month of May based on multiple carrier advisories. While the May 1st General Rate Increase has been implemented to start the contract season, it is questionable as to whether additional planned increases will be successful this month. Some carriers on both the Transpacific Eastbound Trade and Indian Subcontinent Trade to the United States appear to be pushing planned GRI/PSS Surcharges out to June, as the market continues to monitor tariff talks and other geopolitical events. Several carriers have announced and filed potential increases with the Federal Maritime Commission (FMC), that could be as high as $2000 per 40’ container, if/when implemented. While no carrier has pulled the trigger on this level of increase yet, the market will help dictate this. Our guidance is to not overlook this potential increase but to be prepared if the ocean carriers are able to succeed.
An updated geopolitical situation is a potential de-escalation around the Red Sea and an apparent ceasefire deal the United States is said to be working on with the Houthi rebels. The Suez Canal has been impassable for the majority of ocean carriers the past 18 months, as they have deferred to the Cape of Good Hope routing to Europe and the U.S. East and Gulf Coasts, in order to avoid ongoing missile attacks on commercial ships, including ocean container vessels. While there is no confirmation, the outcome of a final agreement and how long it is successfully upheld, will determine when ocean carriers will return back to the faster and more direct transit. Just as important is when the ocean carriers will find their insurance cost reduced to return back to the Suez Canal. Insurance remains a major cost constraint, as the hostility in the Red Sea remains high risk. When the return to the Suez Canal is confirmed, there is going to be a sharp increase in vessel capacity that is available and will certainly have impact on the global scope of ocean container shipping.
While China exports have fallen sharply, there is still activity out of Southeast Asia ports and the Indian Subcontinent, predominantly India, as tariffs remain lower out of these countries and many United States importers successfully transition some or all of their manufacturing out of China and into new areas such as Thailand, Vietnam, Cambodia, Indonesia and India. These countries have developed significantly over the years where China has been dominant. Evidence can be seen as it relates to improved infrastructure, quality of manufactured products, and a growth in the labor force amongst these countries, that can support new opportunities and increased participation in global trade
When there is market volatility, there is of course a domino effect and impact to other parts of the supply chain process. Empty containers become an issue as they begin to accumulate at arrival ports and are often not returned back, especially China, as vessel are voided and there is less capacity to return them on a regularly scheduled basis. As the accumulation increases, terminal space begins to tighten up and any surge of imports can of course be problematic and make the terminals less efficient. When imports do eventually rebound, this will certainly add to increased congestion and expected delays for a period of time. History has shown that the United States infrastructure weakens in surges and volatility and will likely have impact on rail transit, rail equipment, drayage and truck capacity, and even warehouses. This pain could maximize as some transportation related companies make personnel and capacity cuts as workload falls and the outlook remains uncertain as volumes of both import and export shipments continue to decline.
Air Cargo is also impacted by the current tariff challenges and the recent decision by the Trump administration to eliminate the duty-free exemption of low value shipments, known as de minimis. This change in policy took place on May 2nd and will have significant impact in the e-commerce arena. An overall decline in the airfreight market, in particular China to the United States, has led to many flight cancellations and declined use of freighters. Just like the ocean freight scenario, the switch in manufacturing to other countries is providing a boost to air freight out of those areas, but is not enough to compensate the huge declines out of China.
For more information on the impact of tariffs referenced above, please refer to our many updates that will provide more details and guidance on current and future adjustments as trade deals are made in the near future.
With market volatility and unforeseen developments, we remind our community to plan in advance, anticipate delays, and be prepared for disruptions. Should you have any further questions or concerns, please contact your account manager or local handling office for assistance.
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