Square Insights Why are ocean freight rates declining in 2025?

This year, the ocean freight rates have shown a particularly wide range of fluctuations compared to any other year. In particular, the SCFI index peaked at 2,240 points in June and then plummeted to 1,115 points by the end of September, dropping to nearly half its level. This represents a decline of about 38% compared to the beginning of the year and approximately 55% below the 2024 average (2,506 points).

(Source: ChatGPT Cello Square Market Intelligence Service)

• 1Q (Jan.-Mar.): A slight increase in January, followed by a gradual decline from February onward.

• 2Q (Apr.-Jun.): Expectations of demand recovery + carrier GRI effect → Recorded the highest level of the year at 2,240p.

• 3Q (Jul.-Sep.): Global demand slowdown, oversupply, and easing Red Sea and Suez risks → Plummeted to 1,115p by the end of September.

• Overcapacity

  • After the pandemic, the number of ordered ships has gradually increased, leading to a significant rise in container ships / capacity. The global container fleet supply is under continuous pressure due to the expansion of new deliveries and a decrease in scrapping.
  • As demand growth failed to keep pace with this increasing speed, a supply-demand imbalance occurred, and pressure to lower freight rates intensified.

• Demand Softening

  • In major markets such as the U.S. and Europe, consumer and industrial demand is not as strong as expected. There are concerns about a potential economic downturn, and shippers are often delaying or reducing their cargo volumes due to inflation and rising interest rates.
  • Traditionally, demand during peak season tends not to surge as sharply as in the past or becomes more distributed.

• Customs and Trade Policy Issues / Front-Loading Effect

  • Due to expectations of changes in tariff policies in the United States and elsewhere, early demand (pull-ahead) occurred, followed by a "retaliatory adjustment" as demand fell when the policies were not implemented or confirmed, or when expectations were eased.

  • Shippers have adopted a "buy now / secure as much as possible" strategy due to customs uncertainties, and once this is resolved, the demand pattern peaking and then declining is expected to emerge, with volatility likely to persist.

• Routes / Geopolitical Risk Changes

  • The instability of the Red Sea or the Suez Canal led ships to divert, or factors such as rising certification and insurance costs temporarily pushed up freight rates. However, as these risks eased or alternative routes stabilized, the factors driving freight rate increases weakened.

  • However, geopolitical uncertainties still exist, acting as a source of instability.

• Seasonal and One-Time Factors

  • There are seasonal demand fluctuations centered around Chinese manufacturing, such as the Chinese New Year. There is a counter-reaction where orders increase before the holiday, and the traditional pattern of demand dropping after the holiday still exists.

  • Attempts to implement General Rate Increases (GRI) due to peak season expectations often resulted in low success rates or failed to be maintained due to demand / buyer's payment capacity / and competitive pressure.

• Carrier's Supply Control / Intensified Competition

  • The issues of empty container turnover and operational burdens, such as shortages or imbalances in container equipment, have led shipping lines to attempt supply adjustments with blank sailings and route adjustments. However, achieving complete adjustments remains challenging.

  • Intensified competition: The introduction of new ships and the competition to improve services among shipping lines are factors that prevent freight rates from remaining high for an extended period.

Like this, due to various reasons, it has been a year of significant fluctuations in ocean freight rates. In this situation of continuous decline in ocean freight rates, let's briefly look at how shippers, carriers, and freight forwarders should prepare.

• Shipper: Short-term freight rate reduction opportunities → Need to diversify procurement strategies.

• Carrier/Forwarder: Increasing pressure on profitability → Service quality and capacity adjustment are important.

• Contract Strategy: Long-term Contracts vs Short-term contracts balance is the core of risk management.

Cello Square provides shippers with a monthly report that contains information related to ocean, air, and the overall economy. If you are a Cello Square member, you can download all content for free.

• Monthly Report (Monthly): Global Economic Trends, Key Ocean/Air Freight Market Updates, Latest Articles, etc.

• Quarterly Report (Quarterly): Quarterly Economic/Ocean/Air Outlook and Trends Summary

• Special Report (Quarterly): In-depth Report Focused on Specific Topics

Additionally, we have opened the Market Intelligence service on ChatGPT, allowing you to directly ask questions and find answers. Access ChatGPT now and search for "Cello Square MI Service" in the exploration section.

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