Ports to benefit from recent surge in container rates globally

The latest surge in container rates is reminiscent of the surge in container rates globally during the recent pandemic. — AFP

THE ports sector is poised to be a net beneficiary of the recent surge in container rates globally as volumes rise.

While ports and logistics companies will gain from this, a sustained surge in the longer term could, however, lead to overall pricier goods to the consumers.

The surge in container rates this time around appears to be driven by panic as trade tensions between the United States and China and the war in the Middle East disrupting trade flows through the Red Sea.

Companies have also reportedly front-loaded their shipments in preparation for the coming holiday season on concerns of increases in US tariff rates.

The Port of Tanjung Pelepas and Northport (M) Bhd recently said they have achieved a new record container throughput in May amid these global developments. Volume gains are also anticipated for the other port operators in Malaysia including Westports Holdings Bhd and Bintulu Port Holdings Bhd, say analysts.

Recent data compiled by the S&P Global Commodity Insights also showed that the increased container landings at ports is due to port congestion in the regional and is also seen in Singapore.

It is also learnt from industry players that delays in Singapore have in turn diverted many ships to dock at other main ports such as Port Klang and Dubai.

According to the Drewry World Container Index data, shipping rates have continued to rise in the week at 4,716.22 per 40-foot container in the week ended June 6, which is more than a 50% surge from a month back.

The data showed gains were especially being driven by shipping from Shanghai, China to port cities in the West such as Rotterdam, Los Angeles and New York as exporters front load their purchases in anticipation of tariff hikes.

The panic to quickly ship-out is mainly being driven after the United States announced an imposition of tariffs on US$18bil of exports from China including a 100% tariff rate on electric vehicles to protect American jobs and businesses.

The latest surge in container rates is reminiscent of the surge in container rates globally during the recent pandemic.

“This had a positive impact on the logistics sector. It is, therefore, highly likely that this current surge in container rates will increase the profitability of logistics players significantly,” former senior investment banker and high-net-worth investor Ian Yoong tells StarBizWeek.

“This surge in container rates is due to Black Swan events in the global logistics sector. The lesson learnt from the pandemic is that with this squeeze on capacity during the peak season in the third quarter, the strategy might be to start importing more goods now. The risk in having overly high inventories is more acceptable than the risk of having goods arriving a few months late,” Yoong adds.

There is tremendous chaotic congestion and a shortage of capacity at major ports around the world, he notes.

“What is equally significant is that demand reached record levels in the first quarter of 2024, which is a 9.2% year-on-year rise compared to the same quarter of 2023,” he says.

The recent events will result in increased pressure on shipping capacity in the short term moving foward, he notes.

“The fears of escalation in the US-China trade war, threat of labour negotiations on the US East Coast ports and restrictions in the Panama Canal have added fuel to the fire,” Yoong says.

There is a possibility of freight rates remaining at elevated levels although this would be predicated on further developments including at the Red Sea and the war in the Middle East.