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The global supply chain, which faced severe disruptions during the COVID-19 pandemic, is now encountering significant challenges once more. Although conditions are not as chaotic as they were at the pandemic's peak, it is evident that transporting goods from origin to destination remains a considerable difficulty for the industry.
The most recent data from Drewry's composite World Container Index (WCI) reflects this ongoing struggle. As of 20 June 2024, the WCI has surged by 25.7% over the past month, reaching $5,117 per 40ft container. This marks a 233% increase compared to the same period last year. The average composite index for the year-to-date is $3,510 per 40ft container, significantly higher than the 10-year average rate of $2,742, which itself was inflated by the exceptional COVID-19 period from 2020 to 2022.
Several factors contribute to these elevated rates and ongoing disruptions. The Red Sea Crisis continues to wreak havoc on global shipping. It has led to substantial port congestion in Europe and Singapore, with the latter briefly overtaking Shanghai as the world's most congested port. This congestion has been exacerbated by equipment imbalances and shortages, as containers remain unevenly distributed due to necessary schedule adjustments.
Moreover, the surge in demand for goods from China to the USA has added further pressure to the global supply chain. Two primary drivers of this surge are the looming possibility of strikes on the US East and Gulf Coasts and significant tariff increases imposed by the US government on Chinese goods. Unions withdrawing from talks indicate a high possibility of strikes in Q4, leading to increased demand as businesses attempt to avoid disruptions. Additionally, tariff hikes of up to 75% have spurred a rush to import goods before the increases take effect. These pressures are straining the shipping industry and contributing to rising freight rates worldwide. With the global fleet operating at minimal idle capacity, rates are likely to remain high.
The Red Sea Crisis also poses significant challenges to global shipping and trade, with ongoing hostilities and geopolitical tensions adding complexity to navigating this critical maritime region. Shipping routes have been rerouted around the Cape of Good Hope, increasing time and costs for shipments. This crisis, combined with other global supply chain disruptions such as the Panama Canal drought and US labour strikes, has led to widespread port congestion and delays.
Schedule reliability, which had shown steady improvement in Q1, declined in April. The latest statistics indicate a 2.5% month-on-month reduction, bringing global schedule reliability down to 52.1%. Year-on-year, reliability has decreased by 12.1%. Additionally, the number of blank sailings has increased, with 61 cancelled sailings out of 668 scheduled between week 26 and week 30 of this year. This 9% cancellation rate is 3% higher than the previous month, with the majority of blank sailings occurring on the Transpacific Eastbound and Asia-North Europe routes.
Equipment shortages, particularly in China, continue due to strong export demand and ongoing diversions around southern Africa. Meanwhile, global air freight rates have also seen significant increases. The global air cargo spot rate rose by 9% year-on-year in May to $2.58 per kg, marking its second consecutive month of growth. The global air cargo market is projected to experience double-digit growth in 2024, following a 12% year-on-year increase in demand in May.
While today's supply chain disruptions are not as severe as those during the height of the COVID-19 pandemic, the industry continues to face substantial challenges. Elevated freight rates, port congestion, equipment shortages, and geopolitical tensions all contribute to a complex and strained global supply chain environment.