ASIA-US spot freight rates continue to climb ever higher, nearing Covid-era records and showing an increasingly steep disconnect with US import volumes. June import data confirms continued strength, but nowhere near the strength that explains skyrocketing spot rates.

The US imported 2,297,979 teu in June, down 2.1% month on month and up 10.4% year on year, according to Descartes.

Average imports during 1H24 were almost exactly in line with where they should be based on normal growth trends. Monthly volumes in 1H24 were just 2% above levels implied by the pre-Covid (2017-2019) compound annual growth rate.

Average monthly import volumes in 1H24 were 10% below average volumes in 1H22, during the peak lockdown-era disruptions.

And yet, the Shanghai Containerised Freight Index (SCFI) for the Asia-US west coast lane — a trade that is not directly affected by Red Sea diversions or Panama Canal constraints — hit $8,103 per feu in the week ending Friday.

That is on par with the record-high $8,117 per feu assessment of the SCFI for this lane in the week of February 18, 2022, at the very peak of the COVID-era supply chain crisis, when America’s entire inland logistics system was historically snarled.

“There is a bubble in container shipping at the moment,” argued Deutsche Bank analyst Andy Chu in a research note on Tuesday.

“We think that demand has been driven by the pull-forward of peak season [due to] longer transit times around the Horn of Africa, uncertainty over tariffs, and some panic buying as freight rates have soared.”

Chu maintained that “the magnitude of rates increases [is] hard to understand”.

In an interview with Lloyd’s List on Wednesday, Jason Miller, a freight economist and professor of supply chain management at Michigan State University, highlighted a basic difference between rate dynamics now and during the pandemic — and a basic similarity.

“This is completely different. The demand-side fundamentals are not there like they were with Covid, when people were spending so much more on goods,” he said.

The similarity: “There is a feeding frenzy as importers worry about not getting their stuff, so they prioritise pulling cargo forward, which drives up spot rates, which makes people worried that spot rates will go up even more.

“You get into this doom loop of spot pricing, and it will take a fundamental decline in demand to get you out of that doom loop.”

Import mix very different vs pandemic

Miller analysed the types and volumes of containerised goods being imported by the US to draw further distinctions between the current market, the Covid-boom market, and the pre-Covid market.

The pandemic market was heavily driven by consumer-goods spending, complemented by elevated industrial activity. Current US import volumes are less consumer-centric, although consumer spending is still strong.

“The increases now are more industrial-oriented,” Miller said. Gains are being seen for goods such as plastic products, solar cells, synthetic dyes and pigments, general purpose machinery, and electrical equipment such as components related to EV batteries.

Goods categories that are down in 2024 versus 2022 include furniture, miscellaneous manufactured products, microwaves, mixers, washing machines, driers, toys, workout equipment, construction materials, and apparel.

“In the first five months of 2024, apparel from Asia has barely budged from where it was in 2018 and it is down incredibly, by 31%, from where it was in 2022.”

In terms of overall volume, Miller noted that it makes sense for imports to be up versus pre-Covid levels due to normal trends in economic growth over time.

But current volumes are well below pandemic levels, which were sharply above those trend lines.

“The fact that the number of boxes being moved is below 2022 levels explains why everything on the inland side isn’t being gummed up like it was then, when it was all about the higher number of boxes.”

This time around, rates are being driven by increased tonne-miles for containerised cargo due to Red Sea diversions. “It is the huge demand shock from the mileage standpoint that has driven up the ocean rates,” said Miller.

2025 could be ‘craziest year we’ve ever seen’

Future spot rates are highly contingent on the outcome of Israel-Hamas ceasefire talks and whether a ceasefire spurs renewed liner traffic via the Red Sea.

Another factor is the extent current demand is due to pull-forward of peak-season holiday cargoes in the US. The latest forecast from the National Retail Federation (NRF) and Global Port Tracker shows US imports peaking in August, then falling back to 2023 levels (and close to 2018 levels) by October.

Yet another big variable is containership newbuilding deliveries. New vessels continue to flood the market, and are ultimately expected to offset tonne-mile upside from Red Sea diversions.

The presidential election could also play a major role in the US market, starting in 2025, according to Miller, who issued a dire warning on ocean rates for next year.

“I think 2025 has the potential to be the craziest year we’ve ever seen on the ocean container side, under the following scenario: Donald Trump gets elected, which is where I would put my betting money right now. If he wins, and the 60% China tariff happens, let us say starting January 1, 2026, we will see front-loading like we have never seen before in 2025.

“There would be a massive pull-forward of demand as everybody rushes to bring in long-life inputs and goods from tariff countries, especially China.

“On the other hand, if Joe Biden wins, we could start seeing the Fed lower interest rates, and you could see economic activity picking up. We could see more construction activity, and hopefully a rebound in domestic manufacturing.”

Asked about a scenario of a Trump tariff import pull-forward and simultaneous Fed cuts spurring economic growth, Miller said: “I think the Fed would be very cautious about doing that due to concerns that tariffs would contribute to inflation.

“Either way, 2025 would have a better import demand scenario than this year. It is difficult for me to see a scenario where there’s not going to be stronger import demand growth in 2025, barring the US economy falling into recession, and there does not seem to be any evidence of that yet.

“But the challenge with the pull-forward scenario is that it is not sustainable, which would make you think 2026 would be absolutely abysmal.”