Ocean freight rates have softened following a front-loaded peak season, but the respite is overshadowed by escalating geopolitical risks in the Middle East and persistent port congestion in Asia. According to FreightWaves, spot rates on the benchmark Asia-U.S. West Coast route fell 6% to $7,067 per forty-foot equivalent unit (FEU) for the week ending July 17, based on the Baltic Index compiled by Freightos. Rates on the Asia-U.S. East Coast lane held steady at $9,102 per FEU.
The decline comes as carriers added capacity to some lanes and the early unwind of an early peak season began, according to Freightos Analyst Judah Levine. “But even with fuel prices rising, container rates are easing – slightly – for the first time since April,” he said in a weekly update. Daily rates so far this week show West Coast and Asia-Mediterranean prices continuing to slide.
Geopolitical Risks Intensify
The post-peak calm is disrupted by a hot war in the Middle East. “The U.S. and Iran have traded strikes for 10 days straight, with Iranian actions also targeting neighbor states and area vessels, and missile attacks reaching as far as US positions in Jordan,” Levine said. Traffic through the Strait of Hormuz has again slowed to a trickle, and the conflict has now extended to the Bab el-Mandab strait at the south end of the Red Sea. A 2022 ceasefire between Saudi Arabia and Houthi rebels was tested this week when the Saudis turned weapons on Sanaa’s airport. The Houthis responded by declaring the Red Sea closed to Saudi-linked vessels and ships calling at Saudi ports, though enforcement remains unclear.
The Houthi blockade could have significant impacts. Analyst Lars Jensen noted that if Asia-Saudi cargo must be shipped around Africa, it would put substantial demand pressure on Asia-Mediterranean services. The recent events may also force Maersk and CMA CGM to alter plans to resume scheduled Red Sea services, including calls at Saudi Arabia. Meanwhile, the Saudis have diverted a significant share of pre-war oil flows away from the Strait of Hormuz via pipelines to Jeddah port on the Red Sea, where volumes continue by tankers passing Yemen.
Port Congestion and Capacity
Falling rates coincide with the arrival of extra ships sent to Far East hubs by carriers to accommodate surging demand. “The capacity aspect may explain the slight discrepancy between trans-Pacific West and East Coast rates, as more vessels were added to West Coast services,” Levine said. However, port congestion in Asia is absorbing some capacity, mitigating downward pressure. Surging volumes that spurred delays at major origin ports have worsened due to bad weather, including last week’s Typhoon Bavi. The storm temporarily shut down several major ports, leading to serious vessel bunching in Shanghai and Ningbo and multi-day waits in Qingdao.
Implications for Shippers
Shippers should monitor the evolving situation closely. With carriers deciding against mid-month general rate increases and peak season surcharges set for July 15, the implied demand cooling may provide short-term relief. However, geopolitical risks in the Middle East could disrupt longer transit times and raise costs if Red Sea closures persist. Port congestion in Asia may tighten capacity even as rates ease. The 50% tariffs on Canada announced by President Trump add another layer of uncertainty, with potential retaliation on crude exports that could raise fuel costs.
Watch List
- Middle East Conflict: Further escalation or Houthi enforcement of Red Sea closure could force rerouting around Africa, affecting Asia-Mediterranean and Asia-Europe services.
- Typhoon Season: Continued weather disruptions in Asia could worsen port congestion and vessel bunching.
- Tariff Developments: Potential Canada tariffs on crude exports may increase bunker prices, impacting overall shipping costs.
- Carrier Strategy: Whether Maersk, CMA CGM, and others proceed with Red Sea resumption or adopt alternative routings.
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