Container market eases despite renewed fuel price rally

Drewry’s World Container Index fell by 2% this week after nine consecutive weeks of increases. Rates from Shanghai to Genoa and Shanghai to Los Angeles both declined by 3%, while the Shanghai–Rotterdam route slipped by 1%.It is the first decline in the Drewry World Container Index since 30 April. According to Drewry, the fall suggests that the strong upward momentum seen during the peak season is beginning to subside. Congestion at several European ports is also starting to ease.Drewry expects container rates on both the Transpacific and Asia–Europe trades to remain broadly stable next week. Although demand is softening and this is increasingly determining container prices, there are also factors preventing freight rates from falling too sharply.One of those factors is fuel. In recent weeks, more oil and gas had been flowing through the Strait of Hormuz again, helping to stabilise energy and bunker fuel prices. Now that the ceasefire between the US and Israel on one side and Iran on the other has effectively collapsed, fuel prices have surged once more. That leaves room for shipping lines to introduce or increase bunker-related surcharges.The renewed escalation of the conflict is not only making transit through the Strait of Hormuz more difficult, but also reducing the likelihood of a large-scale return to the Red Sea. Some carriers had cautiously started to resume Red Sea sailings, but those plans are now likely to be put on hold. As long as vessels continue to divert around the Cape of Good Hope, much of the available capacity remains tied up on these longer routes. A widespread return to the Red Sea would release significant capacity and put downward pressure on freight rates. The Drewry World Container Index stands at $4,547, this is 74.8% higher than a year ago. Air freight rates also eased slightly. The Freightos Air Index declined by 2% last week, although rates remain around 25% higher than a year ago. According to Freightos, elevated fuel prices continue to be the main reason why air freight rates remain well above last year's levels.