Xeneta, in its latest update, examines the shifting market dynamics by focusing on the two reefer trades from North Europe to the Persian Gulf and North Europe to Southeast Asia.
North Europe to the Persian Gulf
According to Xeneta, since the end of 2023, the long-term contract market average for a 40ft Reefer High Cube (RH) on the trade from North Europe to the Persian Gulf (and Gulf of Oman) has increased significantly, rising by 58% to stand at USD 3570 as of 19 September.
Xeneta notes that this data is based on long-term rates signed within the past three months, rather than all valid contracts in the market. Consequently, this measure provides insight into the long-term rates being offered at that particular point in time.
Moreover, freight rates on this trade jumped by USD 950 per RH right at the start of 2024, as the market faced the reality that 90% of transits through the Bab el-Mandeb Strait were no longer occurring.
As a result, most container lines changed the normal sailing route between North Europe and the Far East by diverting away from the Persian Gulf and Gulf of Oman, opting instead to head south towards the Cape of Good Hope as soon as ships had passed the northern tip of Sumatra on the fronthaul.
Notably, the same route was taken on the return journey, since carriers needed the ships back in the Far East as soon as possible to limit the impact of extended transit times on weekly schedules.
However, as with almost all efforts to mitigate the impact of the Red Sea conflict, there are unintended consequences to the best of intentions. By changing this sailing route, the ships missed numerous port calls in the Persian Gulf and Gulf of Oman, which would have ordinarily been used to deliver reefer cargoes on the backhaul voyage en route from North Europe to the Far East.
Thus, when capacity is cut and services adjusted, it is almost inevitable that freight rates will rise—and that is exactly what happened on the reefer trade from North Europe to the Persian Gulf, with average long-term rates increasing by USD 300 from early January to the current rate of USD 3570 per RH.
North Europe to Southeast Asia Comparison
At the end of 2023, there was just a USD 64 difference in the long-term reefer rates on the trades from North Europe to the Persian Gulf and from North Europe to Southeast Asia.
However, by 19 September, the spread between these trades had increased to an eyebrow-raising USD 959 per RH. This serves as a good example of how the Red Sea crisis has severed the relationship between two seemingly similar trades, setting them on entirely new market trajectories.
While the re-routing due to the Red Sea conflict caused massive disruption in the Persian Gulf due to missed port calls, there was no such impact on the trade to Southeast Asia.
After the initial jump in January 2024, long-term contract rates from North Europe to Southeast Asia settled into a ‘new normal’ and have mostly been moving sideways ever since. The market high-low range on this trade in 2024 is between USD 2,250 and USD 3,000, and currently sits a meager USD 161 per RH lower on 19 September compared to 1 January.
Ocean network changes impact demand
Additionally, the demand profile between these trades has also been altered by the reconfiguration of ocean supply chains in 2024.
Notably, the reefer trade from North Europe to the Middle East is 40% bigger in terms of volume than the trade from North Europe to Southeast Asia. However, the number of reefers moved into the Middle East grew by only 2.5% year-on-year in the first seven months of 2024.
In contrast, volumes on the trade to Southeast Asia increased by 6.8% in the same period. Moreover, demand for reefer movements into Southeast Asia from North Europe has been higher year-on-year in every month of 2024 so far, with the exception of June.
Whether this is due to reefer goods being priced out of the market or a lack of port options for reefer shippers is difficult to ascertain, but the impact on demand is clear.
Furthermore, the behavior highlighted in the two trades discussed in this update should also be seen in the context of global demand for reefer container transport, which is at an all-time high.
In the first seven months of 2024, reefer demand is up 5.1% compared to 2023. In addition, there has been a monthly record set in every month, with the exception of April (which only narrowly missed setting the highest-ever total for that month).
Looking Forward
Traditionally, the middle of the year is considered the low point in terms of demand volatility for these reefer trades, with Q4 tending to be the peak season.
This raises the question of how these trades will behave in the three months ahead. Should we expect long-term rates to increase on both trades? Given what we have seen during 2024 to date, perhaps the trade to Southeast Asia is best positioned to cope with increased seasonal demand.
On the other hand, shippers using the reefer trade to the Middle East could face challenges in moving their refrigerated goods—certainly at a price anything close to what they were expecting this time last year.
