Is the Freight Rate Turning Point Here? SCFI Snaps Three-Week Winning Streak as US Lines Hold Firm While Europe Slips; May GRI Faces Headwinds

Amid rising expectations for a new round of US-Iran talks and ongoing volatility in the Middle East, sentiment in the container shipping market has turned markedly cautious. The latest Shanghai Containerized Freight Index (SCFI) snapped its three-week winning streak with a slight pullback, signaling that the market has entered a phase of consolidation and watchful waiting. Multiple freight forwarders indicate that momentum for further rate hikes is lacking in the short term, and expectations for a May general rate increase (GRI) are cooling.

The latest SCFI released on April 17 closed at 1,886.54 points, representing a marginal 0.22% week-on-week (WoW) decline​ (a drop of approximately 4.23 points). This indicates that the overall freight rate trend has shifted from appreciation to a consolidation phase. Notably, rates on the Persian Gulf route (Dubai) fell by 3.26%, marking the first decline since mid-February when regional tensions escalated. This reflects a shift in both regional demand dynamics and risk premiums.

Overall, global volumes remain subdued amid a wait-and-see stance. The combination of Middle East instability, sustained high oil prices, and inflationary pressures has resulted in a demand recovery that falls short of market expectations.

Industry players widely attribute the resilience of US-bound rates to carriers' strategies of "capacity control and blank sailings,"​ compounded by rising bunker costs. However, utilization data from last week indicates that neither West Coast nor East Coast services were fully booked, suggesting underlying demand remains tepid.

In contrast, the European market continues to exhibit pronounced weakness. With prevailing offers for 40'HCs hovering between $2,000–2,200​ (and even touching $1,900), the market faces persistent downward pressure driven by chronic overcapacity​ and softening demand.

Another key focus is the progress of the Trans-Pacific annual service contract negotiations. Industry sources reveal that carriers are pushing for a significant hike, targeting $2,200–2,400 per FEU for the US West Coast​ and an increase of roughly $1,000 for the US East Coast. However, both BCOs (Beneficial Cargo Owners) and NVOCCs (Non-Vessel Operating Common Carriers) have shown limited acceptance, resulting in sluggish negotiations.

For context, contracts signed by mega-BCOs at the end of last year were still anchored at relatively low levels: approximately $1,900 for the West Coast and $2,900 for the East Coast. The current standoff has intensified market jockeying, with both sides adopting a wait-and-see approach.

Furthermore, the Bunker Adjustment Factor (BAF) driven by rising oil prices has emerged as a critical variable. Should the situation in the Middle East de-escalate, these surcharges could be rolled back, potentially reshaping the overall rate structure.

Although the traditional slack season has passed, multiple uncertainties continue to cap upside potential for freight rates. Forwarders widely agree that implementing the upcoming General Rate Increase (GRI) on May 1st​ will be a challenging task.

On one hand, protracted regional conflicts (Ukraine, Red Sea, Persian Gulf) are driving up energy costs and exacerbating inflationary pressures. On the other hand, softening consumer demand in Europe and North America, coupled with a sluggish recovery in terminal markets, is directly stifling cargo volume growth.

Industry analysts point out that the trajectory of freight rates hinges on three pivotal factors:

In summary, against a backdrop of tepid demand recovery, persistently high operational costs, and intertwined geopolitical risks, the container shipping market is expected to maintain a consolidation pattern​ in the near term, leaving limited room for rate appreciation. For freight forwarders, the industry is entering a new phase characterized by "High Costs, Weak Demand, and Intense Bargaining."

Editor: Lily​