Leon Daniels: Hello and welcome back to the Freight Flow Advisor Brief. The show where we break down the freight stories that actually affect cost, capacity, service, and overall decisions in the supply chain. Now if you're a shipper or a carrier or a forwarder or a broker Or even an operator trying to make sense of a volatile freight market, this podcast was designed for you. We like to cut through the headlines and explain what is changing and how it affects your network. Today we're gonna be talking about ocean containers and an uncomfortable development for shippers. Let's face it, rate pressure is moving from the spot market into contract rates. I recently had a conversation with Peter Tirschwell, and he's one of the most experienced and respected voices in container shipping. Peter pointed me to recent article. titled A New Paradigm in Ocean Containers and it sharpened a question I think the market needs to take seriously. We have spent a lot of time talking about the record order book. We know the conventional view. Too many ships should mean lower freight rates. But what if the more important number is not how many ships exist? What if it's how many ships are actually available on the right trade lane, operating reliably enough to move cargo on time? Because right now that effective capacity is being constrained by congestion. Not to mention geopolitical disruption. And you put that together with carrier capacity management and it creates this recipe. And that is why the market is behaving differently than the simple More ships equal cheaper freight. So let's start with the latest. According to Loadstar Asia to Los Angeles spot rates rose six percent to six thousand two hundred and forty four dollars per forty foot container. That alone will get attention, but the bigger signal is what happened alongside it. Average long term rates on Asia to US West Coast and East Coast trades were up forty one percent and forty percent respectively. So if I were to put this in plain English, a spot rate is the price you would pay for a shipment moving now or very soon. It moves quickly with demand, available vessel space, port conditions, and carrier pricing. Conversely, a contract rate is supposed to provide more stability. A shipper commits volume, the carrier commits capacity, and a rate structure. Both sides get more predictability. Now typically a spot rate will move first. While contract rates move more slowly and sometimes they do not follow spot rates at all. And that lag is important. It gives shippers time to assess whether a spike is temporary or structural. But when the spot market pressure starts to flow into contracts, the message is different. Carriers believe the disruption is durable enough to To reprice longer term commitments. And that's the simple point behind Loadstar's phrase the quote rate increase fire is spreading from spot rates to contract rates. Now, my view of this after speaking with Peter is that shippers should not dismiss this as another headline driven spike. but they should not panic and lock in everything at elevated levels The smarter response is to understand why capacity has become tight. it's also to figure out which costs are genuinely structural and where carriers may be using uncertainty to push pricing beyond the underlying economics. Now are you ready for the paradox here? Peter's article highlights the scale of the vessel order book. By one estimate, he cites, it's about thirty-seven percent of the existing global fleet. That is enormous, and it is why analysts have been warning that container shipping could face a long period of overcapacity and weak Carrier earnings. This analysis is not irrational. New ships do matter. Supply eventually matters and demand eventually matters. But in ocean freight, installed capacity is not the same thing as usable capacity. imagine if you will, you own a warehouse with a hundred loading doors. Now on paper you have a hundred doors, but if fifteen are blocked, ten have no labor. Antenna reserved for emergency work. And now let's add on that another 10 are being repaired. The building does not operate like it has a hundred doors. The same thing is true. for a container fleet. A ship that is waiting outside of a congested port is not available for the next voyage. A vessel taking the long way around Cape of Good Hope instead of Transiting through the Red Sea takes longer to complete its rotation. A ship trapped in a geopolitical disruption cannot even reposition empty containers or return to its normal weekly stream. A sailing that gets blanked is a capacity that was marketed but never actually arrives for the customer. So yes, there may be too many ships in the global fleet, but it is possible to have a large fleet and still experience scarcity. Especially on the lanes that matter the most. During the weeks that matter the most and at the gateways where cargo actually needs to move. that is the new paradigm Peter is pointing to. Okay, so there are three forces behind this squeeze and they reinforce one another. First, port congestion and unreliable infrastructure. Peter cited data suggesting that roughly eleven percent of global container ship capacity was waiting outside ports. He also cited higher vessel arrival to berth times in North Europe and schedule reliability that remained well below the pre pandemic benchmark. That matters because container shipping is a tightly connected system. A delayed vessel not only creates a problem at one port, it misses a berth window, then misses a feeder connection, then pushes out a rail or drayage appointment, then delays an empty container availability at the next origin. So you can kind of see this ripple effect build throughout the entire freight. Network. Or put another way, a few days of delay can contaminate a rotation that lasts weeks. Now, former Ocean Network Express CEO Jeremy Nixon made the point very well when he said quote carriers actually do want to run their networks on time. The challenge is the port infrastructure has not really been able to keep up. That quote should land with every infrastructure policymaker, port authority, terminal investor, and shipper. Reliability is not just a service metric, It is capacity. The second force we're gonna look at is one that's been more prevalent in the news, and that's the Strait of Hormuz This situation has shown how quickly a regional security event can turn into a global freight problem. Container vessels and a meaningful amount of capacity were trapped in the Persian Gulf. Now carriers adjusted routing, bookings, insurance plans, and surcharges. But then you layer in the Red Sea. since late 2023, diversions around the Cape of Good Hope have added time, fuel consumption, and vessel days to many Asia Europe rotations. That is capacity absorption. You need more ships to offer the same level of weekly service when each voyage takes longer. Now the third force is carrier capacity management. Blank sailings used to be something shippers watched as an exception. It was a temporary reaction to soft demand, a holiday, bad weather, or an operational breakdown. Now they're becoming this regular operating lever. In fact, sea intelligence data showed that carriers withdrew between 10 and 14% of scheduled capacity across four major East West trades in the first half of 2026. The Asia to US East Coast lane had the highest withdrawal rate of 14%. Asia to the US West Coast and Asia to North Europe were each at eleven percent. And Asia to the Mediterranean was at ten percent. That is a meaningful share of the advertised network. Now, carriers will argue this is necessary to align supply with demand and avoid burning money operating under utilized ships. There is some truth to that argument. The business has a long history of irrational pricing and over deployment. But for shippers, the operational reality is this. Fewer dependable sailings, more uneven equipment availability, and less room for error in the supply chain. Now I'm gonna pause here because this is a perfect place to talk about freight FA dot com. When rates, surcharges, and routing options change quickly. That old spreadsheet, it becomes outdated before the next procurement meeting. That's exactly why we built Freight FA. It's To help shippers, logistics teams, and decision makers turn freight complexity into clear action. we've also added the freight flow advisor chat. It is an AI powered freight analyst that you can ask practical questions to in plain language. So instead of chasing disconnected quotes and manually rebuilding lane comparisons, Freight FA helps you pressure test costs, compare freight, and bring more confidence into the conversation with carriers. Forwarders and internal stakeholders. So listen, whether you're managing a few critical lanes or building a broader transportation strategy, take a look at Freight FA to give you a better starting point for freight intelligence and cost visibility. So visit freightfa.com. That's freightfa.com. Now, as we pivot back to ocean containers, Emerging production markets are not just adding volume, they're reshaping where freight risk sits. You see, as companies diversify sourcing beyond China, countries such as Vietnam, Indonesia, Thailand, Cambodia, India, and Mexico become more important nodes in the supply chain. That diversification makes strategic sense. It can reduce concentration risk. It can help companies respond to tariffs, trade. trade policy, labor dynamics, and customer demand. But diversifying manufacturing without diversifying logistics creates a new exposure. Peter's article points to congestion challenges at developing Southeast Asian ports. This is where container dwell and loading delays can be material. This is not a criticism of those markets. It is a reality of rapid growth. Manufacturing investment can move faster than terminal capacity. Road access, rail links, empty container depots, customs systems. and power infrastructure. So for an executive, the takeaway is simple. A sourcing decision is now also a network design decision. The cheapest factory gate price does not always produce the lowest delivered cost. If a gateway has unreliable vessel calls, constrained equipment, weak inland connections, or long dwell times, that cost shows up elsewhere. Now listen, if you're a forwarder or a 3PL, this is an opportunity. Customers increasingly need origin management, equipment planning, consolidation, alternative port strategies, and exception visibility. The value is not merely buying a container slot. The value is keeping the flow moving when the normal plan breaks. So you might ask what should freight operators and cargo owners do with this? Well, first you should separate rate risk from service risk. A rising ocean rate is visible. A miss sailing, late transshipment, poor equipment cycle, or delayed inland handoff can be more expensive, and it is often harder to see in time. When you evaluate a carrier or forwarder, do not only ask what is the rate, you should ask what is the actual schedule performance in this lane. What happens if the vessel skips the port? Where do my empties come from? What is the fallback gateway? How are surcharges governed? Second, you should build contracts that acknowledge disruption rather than pretending it will not happen. Every significant ocean agreement should address routing changes, emergency surcharges, notice periods, force majeure, service failures. allocation treatment and the handling of cargo already in transit. Too many contracts are written for normal conditions. And if you've been paying attention, we are not in normal times. Freight teams need them to work under abnormal conditions. So listen, here's my bottom line. The container market may still have too many ships on paper, but the freight market does not price paper capacity. It prices the ability to get a box from origin to destination on a reliable enough service. And with a cost that can be planned around. Right now, congestion, conflict, longer rotations, blank sailings, and infrastructure limitations are constraining that ability. And as Lodestar reporting shows, the implications are beginning to move beyond the spot market. And definitely into contracts. So that's the signal. Don't look at just fleet growth or the latest index. You need to be examining effective capacity. Because the companies that can see that tightening first Will make better procurement decisions. So that's it for today. Thank you for listening to the Freight Flow Advisor Brief. if this episode helped you make sense of the market, share with someone managing freight procurement or supply chain strategy. Now I'll be dropping a more detailed article next week on the Substack, so head over to Substack.com, search the Freight FA Brief, and make sure you subscribe while you're there. You can listen to this podcast on Apple and Spotify, or you can watch us on YouTube. If you're looking for us on social media, you can find us on LinkedIn, Facebook, and Instagram at the Freight Flow Advisor. Until next time, this has been your Freight Flow Advisor Brief.