Less travel translates into higher demand for consumer goods, drives up freight rates: Flexport

[SINGAPORE] Higher fuel prices have helped fan a surge in demand for fast-moving consumer goods in the US and Europe as more people cut back on their overseas holidays due to increased airfares.

This, in turn, has driven up ocean freight rates. Sea freight rates have spiked up to three times in general since the Middle East war erupted as oil flows out of the Gulf were reduced to a trickle. This has caused the prices of oil – including jet fuel and marine fuel – to rocket.

The Shanghai Containerized Freight Index was up 9.5 per cent week on week on Friday (Jun 12) after a 16 per cent rise the previous week. It covers 13 export trades out of Shanghai, and is the world’s most widely used index for spot market ocean-freight rates for Chinese imports.

The Drewry World Container Index continued to climb, rising 3.4 per cent over the week to Jun 11 to US$3,549 per 40-foot container, caused by rate increases on the transpacific and Asia-Europe trade routes.

This came after the benchmark that tracks weighted average spot rates on eight East-West routes surged 22.6 per cent in the week prior.

Nerijus Poskus, global head of ocean procurement at freight forwarder and supply chain platform Flexport, told The Business Times that people are travelling less as they are put off by higher airfares amid elevated fuel prices.

“What that results in is more buying, because... you are no longer spending that holiday in Thailand (for example),” he said. “I think that demand is also... going up quite significantly in both Europe and United States, which created... an early peak season for shipping lines.”

Citing Walmart as an example of big retailers that are benefiting from the rise in demand, he said: “I would say it’s not automotive, it’s not other verticals. It’s a lot more fast-moving consumer goods, electronics that are... spiking, and we see a lot more orders coming in.”

Rates for transpacific and Asia-Europe routes are rising partly also because of bunker costs that went through the roof as carriers implemented emergency bunker charges amid higher oil prices, said Poskus.

Drewry, a maritime consultancy, attributed the rise in the week to Jun 11 to rate increases on the transpacific and Asia-Europe trade routes. It also noted that this year’s peak season began earlier than usual.

Demand is supported by shippers bringing forward bookings ahead of potential US tariff changes expected in July and additional cargo demand linked to the 2026 Fifa World Cup, it added.

It noted that East-West container freight markets have been strengthening as the peak season arrives sooner than typical. Retailers are replenishing inventories earlier than usual in preparation for major sales events, including Amazon Prime Day and TikTok’s mid-year promotions in June and July.

Drewry expects rates to surge in the coming weeks with the peak season under way and increasing seasonal demand.

Poskus said freight futures showed that prices will continue to increase throughout July till August, when a slight reduction is forecast, with more potential reductions in September.

Higher freight cost would dampen demand for certain categories of cargo such as bulky, cheap items, he said. Shipping them now does not make economic sense, especially if vendors still have inventory.

However, as freight lines redeploy capacity to where routes have become more lucrative, overall capacity on these routes will be raised – and this should relieve some of the price pressure, he said.

Currently, the hottest shipping lanes are those to the US East Coast and Europe. However, Europe is congested presently, so adding capacity to the continent is not practical.

Meanwhile, said Poskus, shipments of data servers from South-east Asia and Taiwan are booming but the demand for freight space is nothing compared to solar panels. The latter in the past took up thousands of containers on a vessel a week, crowding out other freight.

However, artificial intelligence data servers typically require premium express services that emphasise high reliability. These do not come cheap, for they cost two to four times more than the typical ocean rate.

“They are still full, so people are simply willing to pay. I believe it’s a growing niche... I would predict 3 to 5 per cent of transpacific markets is moving on the premium product, so it is significant,” he said.