US economic and political outlook

Global trade update: freight rates are stabilising

What’s happened?

Global and regional sea freight rates have begun to stabilise, after peaking in early February as a result of Houthi attacks in the Red Sea. The recent price trends matched our expectations for freight rates following the Lunar New Year, but we expect sea freight rates to remain elevated throughout 2024 (albeit lower than year-earlier levels), given the shipping diversions resulting from the geopolitical situation in the Middle East.

Why does it matter?

We continue to expect the Red Sea disruptions to mirror the timeline of the war in Gaza, which we forecast will continue throughout 2024. For companies reliant on shipping that traverses the Bab al-Mandab strait, this suggests a persistent period of elevated transport costs. Although Europe is disproportionately exposed to these events—given that the shipping lanes most affected are those that link Europe and Asia—major economic disruptions or price shocks remain a risk, rather than our core forecast. Similar spillover risks are present for some Asian economies, as well as European (especially Greek) and African ports. Efforts by the US and the EU to resolve the security situation in the Red Sea also carry significant regional implications for Yemen and the Middle East.

The recent stabilisation in prices is unlikely to foreshadow a sharp drop-off in future sea freight rates. Prices tracked by Freightos Baltic Index indicate that prices on routes connecting China with the Mediterranean and North Europe now average about US$4,500 (per 40-ft equivalent containers). This represents a mild softening from the peaks (of US$5,500-6,000) recorded in late January to early February, as seasonal container demand has moderated following the Lunar New Year. Nevertheless, our expectations for firmer global trade growth in 2024 mean that we also expect global demand to keep a floor under sea freight prices this year. This outlook, alongside our expectations for the Gaza war, suggest that any future reduction in freight rates will be gradual, particularly as the ongoing diversion in shipping traffic worsens infrastructure inefficiencies (and port congestion) elsewhere.

What next?

Asia’s forthcoming export recovery presents upside risks to our view that freight rates will not climb much further, given that trade-related demand for container space is expected to firm. Consequently, the risk of a second wave of inflationary pressures—stemming from production delays, alongside higher insurance and security costs—has not fully diminished. Moreover, the mismatch in container supply vs demand, as a result of longer (and more expensive) transit times, will weigh on freight rates for other shipping lanes as well. Transport prices between China and the North American East Coast, for example, have remained elevated (at about US$6,000), despite those regions’ distance from the conflict.

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